Question

You have $14,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 8 percent. Assume your goal is to create a portfolio with an expected return of 11.35 percent. How much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Investment in Stock X Investment in Stock Y

Answer 1

Let investment in X=$x

Hence investment in Y=(14,000-x)

Portfolio return=Respective return*Respective weight

11.35=(x/14,000*14)+(14000-x)/14,000*8

(11.35*14,000)=14x+112,000-8x

x=(158900-112,000)/(14-8)

=$7816.67(Approx)=investment in X

Investment in Y=(14,000-x)

=$6183.33(Approx).