Question

You have $267,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 11.8 percent.

Required:
If your goal is to create a portfolio with an expected return of 12.85 percent, how much money will you invest in Stock H and in Stock L? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Investment in Stock H $ _________________
Investment in Stock L $ _________________

Answer 1

Answer and Explanation:

The computation of the money invested in stock H and stock L is given below;

Given that

H expected return is 14.2%

and l expected return is 11.8%

and,

portfolio return is 12.85%

Now if we assume that

if h investment portion is X and l investment portion is 1-X

So,

12.85= X × 14.2 +(1 - X) × 11.8

= 14.2X+11.8-11.8X

1.05= 2.4X

X= 43.75%

So investment portion of l is 56.25%

Finally

h investment = 267,000 × 43.75%

= $116,812.5 0

And,

l investment = 267,000 × 56.25%

= $150187.50