Question

You have $15,151 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13.91 percent and Stock Y with an expected return of 8.26 percent. If your goal is to create a portfolio with an expected return of 11.27 percent, how much money (in $) will you invest in Stock X? Answer to two decimals, carry intermediate calcs. to four decimals.

Answer 1

To find out how much money to invest in Stock X to achieve a portfolio with an expected return of 11.27%, you can use a weighted average formula.

Step-by-step explanation:

To find out how much money you will invest in Stock X, you can use the weighted average formula. First, assign variables to the amounts invested in each stock: let's say you invest $x in Stock X and $y in Stock Y. The expected return for Stock X is 13.91% and the expected return for Stock Y is 8.26%. The goal is to create a portfolio with an expected return of 11.27%, so we can set up the equation:

(x * 0.1391) + (y * 0.0826) = 0.1127 * (x + y)

From here, you can substitute the given total amount of $15,151 as the sum of x and y, and solve for x:

(x * 0.1391) + (15151 - x) * 0.0826 = 0.1127 * 15151

Solving this equation will give you the amount to invest in Stock X, rounded to two decimals.