Question

You have $20,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14.3 percent and Stock Y with an expected return of 8.1 percent. Your goal is to create a portfolio with an expected return of 12.5 percent. All money must be invested. How much will you invest in Stock X

Answer 1

Answer:

$14,194

Explanation:

Wy + Wx = 1

Wy*Ry + Wx*Rx = 12.5%

So, let input the values

Wy*8.1% + (1-Wy)*14.3% = 12.5%

Wy*8.1% + 14.3%-14.3%*Wy = 12.5%

14.3%*Wy - Wy*8.1% = 1.8%

Wy*6.2% = 1.8%

Wy = 0.2903

Weight of X in portfolio = 1 - 0.2903

Weight of X in portfolio = 0.7097

Money invested in stock X = $20,000*0.7097

Money invested in stock X = $14,194