You are considering investing $1000 in a complete portfolio The complete portfol

Question

You are considering investing $1000 in a complete portfolio The complete portfolio is composed of Treasury bills that pay 4% and a risky portfolio. P constructed with two risky securities. X and Y The optima>> weights of X and Y in P are 38% and 62%. respectively X has an expected rate of return of 30%. and Y has an expected rate of return of 60% The dollar values of your position m X would be, you decide to hold a complete portfolio that has an expected return of 40% Note Express your answers in numerical terms For example, if the answer is $500. write enter 500 as an answer "

Explanation / Answer

Let $x be the amount invested in P and $(1,000 – x) in Treasury Bills.

Then, Amount Invested in X is 0.38x

And Amount invested in Y is 0.62x.

Total Return must be equal to 8%.

Therefore, 0.38x*30% + 0.62x*60% + (1,000 – x)*4% = 8%*1,000

0.114x + 0.372x + 4 – 0.04x = 80

0.446x = 76

x = 170

So, Amount invested in X is $65

Amount invested in Y is $105

And Amount invested in Treasury Bills is $830.

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