You have $257,000 to invest in a stock portfolio. Your choices are Stock H, with

Question

You have $257,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 10.8 percent.

If your goal is to create a portfolio with an expected return of 12.35 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).)

If your goal is to create a portfolio with an expected return of 12.35 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).)

Explanation / Answer

Required Expected return = 12.35%

Amount to be invested = $257000

Let the amount invested in stock H = X and in the stock L = (1-x)

Expected return = X * 14.2 + (1-X)*10.8

12.35 = X * 14.2 + (1-X)*10.8

1.55 = 3.4X

X = 0.455

Therefore investment in stock H = 0.45* $257000= $115650

and in stock L =0.55 * $257000 = $141350

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