Question

You have $18,100 to invest and would like to create a portfolio with an expected return of 11.1 percent. You can invest in Stock K with an expected return of 10.15 percent and Stock L with an expected return of 13.9 percent. How much will you invest in Stock K?

$4,012.17

$12,388.44

$6,113.78

$4,585.33

$13,514.67

Answer 1

Answer is $13,514.67

Let Weight of Stock K be x and Weight of Stock L be (1 - x)

Expected Return of Portfolio = Weight of Stock K * Expected Return of Stock K + Weight of Stock L * Expected Return of Stock L
0.1110 = x * 0.1015 + (1 - x) * 0.1390
0.1110 = x * 0.1015 + 0.1390 - x * 0.1390
0.1110 = 0.1390 - x * 0.0375
x * 0.0375 = 0.0280
x = 0.746667

Weight of Stock K = 0.746667

Investment in Stock K = Total Investment * Weight of Stock K
Investment in Stock K = $18,100 * 0.746667
Investment in Stock K = $13,514.67