You have $30,000 to invest in a stock portfolio. Your choices are Stock X with a

Question

You have $30,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 16 percent and Stock Y with an expected return of 8 percent.

If your goal is to create a portfolio with an expected return of 11.8 percent, how much money will you invest in Stock X?

If your goal is to create a portfolio with an expected return of 11.8 percent, how much money will you invest in Stock Y?

You have $30,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 16 percent and Stock Y with an expected return of 8 percent.

Explanation / Answer

Let investment in Stock X = A Investment in Stock Y = 30000 - A Portfolio Return = Stock X * Return + Stock Y * Return 11.80% *30000 = A * 16% + (30000 - A) * 8% 3540 = 16%A + 2400 - 8%A 1140 = 8%A A = 1140 / 8% A = 14250 Investment in X = $14,250 Investment in Y = 30000 - A Investment in Y = 30000 - 14250 Investment in Y = $15,750

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