You have $118,000 to invest in a portfolio containing Stock X, Stock Y, and a ri

Question

You have $118,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 12 percent and that has only 65 percent of the risk of the overall market. If X has an expected return of 36 percent and a beta of 1.7, Y has an expected return of 20 percent and a beta of 1.1, and the risk-free rate is 8 percent, how much money will you invest in Stock Y?

You have $118,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 12 percent and that has only 65 percent of the risk of the overall market. If X has an expected return of 36 percent and a beta of 1.7, Y has an expected return of 20 percent and a beta of 1.1, and the risk-free rate is 8 percent, how much money will you invest in Stock Y?

You have $118,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 12 percent and that has only 65 percent of the risk of the overall market. If X has an expected return of 36 percent and a beta of 1.7, Y has an expected return of 20 percent and a beta of 1.1, and the risk-free rate is 8 percent, how much money will you invest in Stock Y? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) 1 Amount

Explanation / Answer

Answer:

E(Rp)=0.12=(Wx*0.36)+(Wy*0.20)+[(1-Wx-Wy)*0.08]

B(p)=0.65=(Wx*1.7)+(Wy*1.1)+[(1-Wx-Wy)*0]

Two equations, two unlnown

0.12=0.36Wx+0.20Wy+0.08-0.08Wx-0.08Wy

0.04=0.28Wx+0.12Wy

0.65=1.7Wx+1.1Wy

Wx=-0.32692

Wy=1.09615

Invest in stock Y=1.09615*118000=129345.7

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