Question

You have $25,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent. |

Required: |

(a) |
If your goal is to create a portfolio with an expected return of 11.9 percent, how much money will you invest in Stock X? |

(Click to select)$20,280$18,525$59,500$19,500$20,475 |

(b) |
If your goal is to create a portfolio with an expected return of 11.9 percent, how much money will you invest in Stock Y? |

(Click to
select)$5,225$5,500$5,720$5,280$5,775 |

Answer #1

Weight of Stock X = x

Weight of Stock Y = 1-x

Return on Stock X = 13%

Return on Stock Y = 8%

Return on Portfolio = 11.90%

Return on Portfolio = Weight of Stock X* Return on Stock X +
Weight of Stock Y* Return on Stock Y

11.90% = x*13% + (1-x)*8%

0.1190 = 0.13x + 0.08 - 0.08x

0.0390 = 0.05x

x = 0.78

Weight of Stock X = 0.78

Investment in Stock X = 0.78 * $25,000

**Investment in Stock X =
$19,500**

Weight of Stock Y = 1 - 0.78 = 0.22

Investment in Stock Y = 0.22 * $25,000

**Investment in Stock Y =
$5,500**

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