You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. Yo

Question

You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 10.5 percent. Assume D has an expected return of 13.2 percent, F has an expected return of 9.5 percent, and the risk-free rate is 3.8 percent.

If you invest $50,000 in Stock D, how much will you invest in Stock F? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 10.5 percent. Assume D has an expected return of 13.2 percent, F has an expected return of 9.5 percent, and the risk-free rate is 3.8 percent.

Explanation / Answer

Wf+Wrf = 0.50

Wrf×Rrf+Wf×Rf = 5.25%

(0.50-Wf)×3.80%+Wf×9.50% = 5.25%

1.60%-3.80%×Wf+Wf×9.50% = 5.25%

5.70%×Wf = 3.65%

Wf = 0.64

Amount in stock F, Wf = $32,017.54

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