You have $250,000 to invest in a portfolio containing Stock X and Stock Y . Your

Question

You have $250,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 14.05 percent. Stock X has an expected return of 12.74 percent and a beta of 1.32, and Stock Y has an expected return of 8.96 percent and a beta of .78.

How much money will you invest in stock Y? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))

You have $250,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 14.05 percent. Stock X has an expected return of 12.74 percent and a beta of 1.32, and Stock Y has an expected return of 8.96 percent and a beta of .78.

Explanation / Answer

the expected return from X= 1.32*12.74= 16.8168 and

expected return on Y= 0.78*8.96= 6.9888

to get the return of 14.05%, the investment in X is 72% and in Y is 28%

portfolio beta= 1.32*0.72+0.78*0.28

=0.9504+0.2184= 1.1688

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