Question

You have $11,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 11 percent. Assume your goal is to create a portfolio with an expected return of 12.25 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=(11,000-x)

Portfolio return=Respective return*Respective weight

12.25=(x/11,000*13)+(11,000-x)/11,000*11

(12.25*11,000)=13x+121,000-11x

134750=13x+121,000-11x

x=(134750-121,000)/(13-11)

=$6875=investment in X

Investment in Y=(11,000-x)

=$4125