Question

You have $24,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 12 percent. If your goal is to create a portfolio with an expected return of 12.65 percent, how much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations and round your answer to the nearest dollar, e.g., 32.)

Answer 1

Investment in stock X is $15,600 and Investment in stock Y is $8,400

Step-by-step explanation:

Assuming the weights of the Stock X and Stock Y be Q and R

So,

Q + R = 1

R = 1 - Q

(Q × 13%) + (R × 12%) = 12.65%

13 Q + [( 1- Q) × 12] = 12.65

13 Q - 12 Q + 12 = 12.65

Q = 12.65 - 12

Q = 0.65

R = 1 - Q

= 1 - 0.65

= 0.35 or 35%

Therefore, the investment in stock X and Y is as:

Investment in stock X = Amount × Percentage

= $24,000 × 65%

= $15,600

Investment in stock Y = Amount × Percentage

= $24,000 × 35%

= $8,400