You have $15,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $15,000 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 7 percent.

If your goal is to create a portfolio with an expected return of 11.4 percent, how much money will you invest in Stock X?

If your goal is to create a portfolio with an expected return of 11.4 percent, how much money will you invest in Stock Y?

You have $15,000 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 7 percent.

Explanation / Answer

Let investment in X=$x

Hence investment in Y=(15000-x)

Expected return=Respective returns*Respective weights

0.114=(x/15000*0.15)+(15000-x)/15000*0.07

0.114*15000=0.15x+(15000-x)0.07

1710=0.15x+1050-0.07x

Hence x=(1710-1050)/(0.15-0.07)

Hence investment in X=$8250

Y=(15000-8250)=6750

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