Question

Suppose you have a portfolio where you have invested $75,155 in Stock X and Stock Y. Stock X has an expected return of 9% and Stock Y has an expected return of 33%. If your goal is to create a portfolio with an expected return of 17%, what is your dollar investment in Stock X?

Answer 1

a. The amount invested in stock X is computed as shown below:

Let the amount to be invested in stock X be Y. So, the amount invested in stock Y will be $ 75,155 - Y

Expected return on portfolio x Amount invested in portfolio = Amount to be invested in Stock X x expected return on stock X + Amount to be invested in Stock Y x expected return on stock Y

0.17 x $ 75,155 = Y x 0.09 + ($ 75,155 - Y) x 0.33

$ 12,776.35 = 0.09 Y + $ 24,801.15 - 0.33 Y

$ 12,776.35 = $ 24,801.15 - 0.24 Y

0.24 Y = $ 12,024.8

Y = $ 50,103.33 Approximately

So, the amount invested in stock X is $ 50,103.33

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