You have $200,000 to invest in a portfolio containing Stock X and Stock Y. Your

Question

You have $200,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 11.85 percent. Stock X has an expected return of 10.39 percent and a beta of 1.26, and Stock Y has an expected return of 7.01 percent and a beta of .74. How much money will you invest in stock Y? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Investment in Stock Y $ What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161)) Portfolio beta

Explanation / Answer

RP = R1W1 + R2W2

R1= X= 10.39 %

R2 = Y = 7.01 %

WEIGHT1 = ASSUME AS A

WEIGHT 2 = 1-A

11.85 = 10.39 A + (1-A)7.01

11.85= 10.39A + 7.01- 7.01A

4.84 = 3.38A

A = 3 .38 / 4.84= 69%

1-A = 31%

BETA OF PORTFOLIO = 1.26 * 69% +0.74 * 31% = 0.998

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