Question

You have $150,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 13.45 percent. Stock X has an expected return of 12.06 percent and a beta of 1.46, and Stock Y has an expected return of 8.22 percent and a beta of .82.

How much money will you invest in stock Y?

What is the beta of your portfolio?

Answer 1

Answer are given below;

Step-by-step explanation:

Let A be the investment in Stock X and remaining (1-A) should be investment in stock Y

Rp=AXRx+(1-A)XRy

13.45%=A*12.06%+(1-A)*8.22%

13.45%=12.06%A+8.22%-8.22%A

13.45%=3.84%A+8.22%

13.45%-8.22%=3.84%A

5.23%/3.84%=A

A=1.36

Now 1-A=1-1.36=.36

Now amount invested in Y shall be =$150,000*.36=$54,000

Beta of portfolio=1.46*(1-.36)+.82*.36=.93+.30=1.23