You have $258,000 to invest in a stock portfolio. Your choices are Stock H, with

Question

You have $258,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.3 percent, and Stock L, with an expected return of 10.9 percent.

If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock H and in Stock L? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

You have $258,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.3 percent, and Stock L, with an expected return of 10.9 percent.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Let the amount invested in Stock H be X

The amount invested in Stock L be (258000 - X)

Expected Return = Amount Invested in Stock H/Total Amount*Expected Return on Stock H + Amount Invested in Stock L/Total Amount*Expected Return on Stock L

12.40% = X/258000*14.30% + (258000 - X)/258000*10.90

12.40%*258000 = 14.30%*X + 258000*10.90% - 10.90%*X

31992 = 3.4%X + 28122

X = (31992 - 28122)/3.4% = $113823.53

Amount Invested in Stock H = $113823.53

Amount Invested in Stock L = 258000 - 113823.53 = $144176.47

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.