Question

You have $15,673 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14.54 percent and Stock Y with an expected return of 10.02 percent. If your goal is to create a portfolio with an expected return of 11.57 percent, how much money (in $) will you invest in Stock X? Answer to two decimals, carry intermediate calcs. to four decimals.

Answer 1

The amount to be invested in stock X is computed as shown below:

Let the amount to be invested in stock X be K. So, the amount invested in stock Y will be ($ 15,673 - K)

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

0.1157 x $ 15,673 = K x 0.1454 + ($ 15,673 - K) x 0.1002

$ 1,813.3661 = 0.1454 K + $ 1,570.4346 - 0.1002 K

0.0452 K = $ 242.9315

K = $ 5,374.59 Approximately

So, the amount to be invested in Stock X is $ 5,374.59.

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