You have $20,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $20,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 8 percent.

If your goal is to create a portfolio with an expected return of 10.8 percent, how much money will you invest in Stock X?

If your goal is to create a portfolio with an expected return of 10.8 percent, how much money will you invest in Stock Y?

You have $20,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 8 percent.

Explanation / Answer

Let investment in X=$x

Hence investment in Y=$(20000-x)

Portfolio return=Respective return*Respective weights

10.8=(x/20000*14)+(20000-x)/20000*8

(10.8*20000)=14x+160000-8x

216000=6x+160000

Hence x=(216000-160000)/6

=$9333(Approx)=investment in X

Hence investment in Y=(20000-9333)=$10667

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