Question

You would like to invest $24,000 and have a portfolio expected return of 11.5 percent. You are considering two securities, A and B. Stock A has an expected return of 18.6 percent and B has an expected return of 7.4 percent. Approximately how much should you invest in Stock A if you invest the balance in Stock B

Answer 1

$8,786

Step-by-step explanation:

Calculation for how much should you invest in Stock A if you invest the balance in Stock B

First step is to find x by calculating the E(RP)

E(RP) = .115 = .186x+ .074(1 –x)

x =.3661

Since x is .3661 now let calculate how much you should invest in Stock A

Stock A Investment= .3661 *$24,000

Stock A Investment= $8,786

Therefore the amount should you invest in stock A is $8,786