Question

You have $17,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 10 percent. Assume your goal is to create a portfolio with an expected return of 12.15 percent. How much money will you invest in Stock X and Stock Y

Answer 1

For X = $7,130

For Y = $9,690

Step-by-step explanation:

The calculation of investment in stock X and stock Y is shown below:-

We assume the weight of investment in stock x = x

Expected return = Weight of x × Return of x + Weight of y × Return of y

12.15 = x × 15 + (1 - x) × 10

12.15 = 15x + 10 - 10x

x = (12.15 - 10) ÷ 5

x = 43%

Investment in stock Y = 100 - 43

= 57%

Now,

Dollar Investment in x = Stock investment × Expected return

= $17,000 × 43%

= $7,130

Dollar Investment in x = Stock investment × Expected return

= $17,000 × 57%

= $9,690

So, we have applied the above formula.