You have 25000 to invest in a stock portfolio Your choices a

You have $25,000 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. Required: (a) If your goal is to create a portfolio with an expected return of 11.8 percent, how much money will you invest in Stock X? (Click to select)+ (b) If your goal is to create a portfolio with an expected return of 11.8 percent, how much money will you invest in Stock Y? 1 (C lick to select) +

Solution

Let investment in X=$x

Hence investment in Y=(25000-x)

Portfolio return=Respective return*Respective weights

11.8=(x/25000*14)+(25000-x)/25000*8

(11.8*25000)=14x+(25000-x)*8

295000=14x+200,000-8x

x=(295000-200,000)/(14-8)

=$15,833.33(Approx)=investment in X

Hence investment in Y=(25000-15833.33)=$9166.67(Approx).