Question 9 (of 10) Save& Exit Submit Time remaining: 3:04:59 9. 10.00 points You

Question

Question 9 (of 10) Save& Exit Submit Time remaining: 3:04:59 9. 10.00 points You have $19,000 to invest in a stock portfolio. Your choices are Stock X with an expected retum of 15 percent and Stock Y with an expected return of 12 percent Assume your goal is to create a portfolio with an expected return of 13.25 percent How much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations and round your answers to 2 decimal places, .g. 32.16) Investment in Stock X Investment in Stock Y

Explanation / Answer

Let the  Weight of Stock X be x

Hence  Weight of Stock Y = 1-x

Portfolio Return = Expected Return in Stock X * Weight of Stock X +Expected Return in Stock Y * Weight of Stock Y

13.25% = 15% * x+ 12% * (1-x)

13.25 % = 0.15x + 0.12 - 0.12x

or 13.25%- 12% = 0.03 x

or 1.25% / 0.03 = x

Hence Percentage in Stock Y = 100- 1.25% / 0.03

Amount Invested in Stock X = $ 19,000 * 1.25% / 0.03  

= $ 7,916.67

Amount Invested in Stock Y= $ 19,000 * (100- 1.25% / 0.03 )

= 11,083.33

Hence the correct answer is $ 7,916.67 for X and $ 11,083.33 for Y

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