You have $13,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $13,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Assume your goal is to create a portfolio with an expected return of 12.35 percent.

Required:

How much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

You have $13,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Assume your goal is to create a portfolio with an expected return of 12.35 percent.

Explanation / Answer

Answer:

To earn an expected return of 12.35% we must invest as follows;

Suppose we invest x% of $ 13,000 in Stock X and (1-x)% of $ 13,000 in Stock Y; then according to question

9% of 13,000x + 15% of 13,000 (1-x) = 12.35% of 13,000

0.09 x 13000x + 0.15 x (13,000 - 13,000x) = 1605.50

1,170x + 1,950 - 1,950x = 1605.50

x = 0.378205 or 37.8205% to be invested in Stock X

and, 1 - x = 1 - 0.378205 = 0.621795 or 62.1795% to be invested in Stock Y

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.