2463 2015 522 866 1641 You are considering investing $5000 in a complete portfol

Question

       2463
       2015
       522
       866
       1641

You are considering investing $5000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 55% and 45%, respectively. X has an expected rate of return of 20%, and Y has an expected rate of return of 12%. To form a complete portfolio with an expected rate of return of 15%, how much money should you invest in security X?

Explanation / Answer

Ans is A 2463

Explanation: risky portfolio weight is 55% & 45% with 20% & 12% return for X & Y

Return on X&Y

X = 0.55*0.20% = 11%

Y = 0.45*0.12% = 5.40%

Weighted average = 16.40%

Lets assume risk free weight is A, & risky portfolio weight = 1-A

Total portfolio return is 15%,

A*3% +(1-A)*16.40% = 15%

Solving for A = 10.45% & 1-10.45% = 89.55%

Risky portfolio weight is 89.55% so X weight = 89.55%*55%*5000 = 2463

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

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