You have $17,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $17,000 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 10.5 percent. If your goal is to create a portfolio with an expected return of 12.53 percent, how much money will you invest in Stock X ? In Stock Y?

You have $17,000 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 10.5 percent. If your goal is to create a portfolio with an expected return of 12.53 percent, how much money will you invest in Stock X ? In Stock Y?

Explanation / Answer

Let x = $amt of Stock X and y = $amt of Stock Y.

x + y = 17000
1.14x + 1.105y = 1.1253 * 17000 = 19130.1
Substituting y = 10000 - x in the second equation,
1.14x + 1.105 (17000 - x) = 19130.1
1.14x + 18785 - 1.105x = 19130.1
.035x = 345.1
x = 9860
Therefore y = 7140

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