You have $16,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $16,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Assume your goal is to create a portfolio with an expected return of 12.40 percent.

How much money will you invest in Stock X and Stock Y?

You have $16,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Assume your goal is to create a portfolio with an expected return of 12.40 percent.

Explanation / Answer

You expect a return of 12.40% that means a return of 16000*12.4%=1984

X=amount of money invested in stock X

Y=amount of money invested in stock Y

You will get a return of X*15%+Y*9%

That means X*15%+Y*9%=1984 therefore (X+Y)*9%+X*6%=1984 therefore 16000*9%+X*6%=1984 therefore X*6%=544 therefore X=9066.(6) therefore Y=6933.(3)

Final solution: X=9066.(6) $ and Y=6933.(3) $

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