Question

You have $258,000 to invest in a stock portfolio. your choices are stock h, with an expected return of 14.3 percent, and stock l, with an expected return of 10.9 percent. if your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in stock h and in stock l?

Answer 1

To create a portfolio with an expected return of 12.4 percent, you should invest $154,800 in stock H and $103,200 in stock L.

Step-by-step explanation:

To achieve an expected portfolio return of 12.4%, you will need to invest a certain amount in stock H and stock L, which have expected returns of 14.3% and 10.9% respectively.

Let the investment in stock H be $x and investment in stock L be $y. The total investment is $258,000, so:

x + y = $258,000

For the desired portfolio return of 12.4%, the following equation must be satisfied:

0.143x + 0.109y = 0.124($258,000)

Solving these equations gives:

• Investment in stock H: $154,800
• Investment in stock L: $103,200