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

Question

You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13 percent and that has only 70 percent of the risk of the overall market. If X has an expected return of 31 percent and a beta of 1.8, Y has an expected return of 20 percent and a beta of 1.3, and the risk-free rate is 7 percent, how much money will you invest in Stock Y? (Do not round intermediate calculations. Round your answer to the nearest whole dollar. Omit the "$" sign in your response.)

Amount $______ ????

Explanation / Answer

E(Rp)=0.13=0.22Wx+0.20Wy+0.07(1-Wx-Wy) 0.13=0.31Wx+0.20Wy+0.07-0.07Wx-0.07Wy 0.06=0.24Wx+0.13Wy B(p)=0.70=1.8Wx+1.3Wy+0(1-Wx-Wy) 0.70=1.8Wx+1.3Wy Solving these equations we get: Wy=-1.169 Wx=0.833 Stock Y=100000*1.169=116900

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