Question

ou 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

Answer:

$4,565.22 ; $5,434.78

Explanation:

Weight of X be “W” and Weight of Y be “1 - W”

Expected return = (Stock X × Weight of X) + (Stock Y × Weight of Y)

10.85% = (12.1% × W) + [9.8% × (1 - W)]

10.85% = (12.1% × W) + 9.8% - (9.8% × W)

2.3% × W = 1.05%

W = 45.6522%

Therefore, 1 - W = 54.3478%

Investment in Stock X = 10,000 × 45.6522%

                                     = $4,565.22

Investment in Stock Y = 10,000 - 4,565.22

                                     = $5,434.78