You have $100,000 to invest in a portfolio containing Stock X and Stock Y. Your

Question

You have $100,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 17 percent. Stock X has an expected return of 14.8 percent and a beta of 1.35, and Stock Y has an expected return of 11.2 percent and a beta of 0.90.

(a) How much money will you invest in stock Y? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

You have $100,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 17 percent. Stock X has an expected return of 14.8 percent and a beta of 1.35, and Stock Y has an expected return of 11.2 percent and a beta of 0.90.

Explanation / Answer

E(Rp)= 0.17 = wx(0.148) + wy(0.112)

We know that wx + wy = 1

wy = 1-wx

Wx = 1.6111

wy= -0.6111

-0.6111($100000) = -$61,111.11

To find beta, multiply the portfolio weight of each asset times its beta, and sum.

Bp = 1.6111(1.35) + (-0.6111)(0.90)

Go John Carroll University Blue Streaks!

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