Additive risk in the CAPM, Suppose that the two securities APPL and MSFT account for the

Additive risk in the CAPM

Suppose that the two securities APPL and MSFT account for the entire large cap technology component of the S&P 500 (hypothetically – of course – there are really plenty of others). Further, suppose that their weights in the S&P index were as follows:

So that, for example, AAPL makes up 3% of the index since its weight is 0.03. [These weights are hypothetical – actual weights are computed based on the current market capitalization of each company included in the index, so they change all the time]

a. What fraction of the total portfolio is this large cap technology sector?
b. What is the beta of this large cap technology sector?
c. If the S&P 500 is the market portfolio, what is its beta?
d. What is the beta of the remaining stocks in the S&P (consider these as a single sector)?

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