Question

You have $10,000 to invest in a stock portfolio. Your choices are Stock x with an expected return of 12.1 percent and Stock Y with an expected return of 9.8 percent. If your goal is to create a portfolio with an expected return of 10.85 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.)

Answer 1

Let investment in X=$x

Hence investment in Y=(10,000-x)

Portfolio return=Respective return*Respective weight

10.85=(x/10,000*12.1)+(10,000-x)/10,000*9.8

(10.85*10,000)=12.1x+98,000-9.8x

x=(1085000-98,000)/(12.1-9.8)

=$4565.22(Approx)=investment in X

Investment in Y=(10,000-x)

=$5434.78(Approx).