You have 20000 to invest in a stock portfolio Your choices a

You have $20,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. Required: (a) If your goal is to create a portfolio with an expected return of 12.1 percent, how much money will you invest in Stock X? (b) If your goal is to create a portfolio with an expected return of 12.1 percent, how much money will you invest in Stock Y?

Solution

Let investment in X=$x

Hence investment in Y=(20000-x)

Portfolio return=Respective return*Respective weights

12.1=(x/20000)*15+(20000-x)/20000*9

(12.1*20000)=15x+180000-9x

242000=15x+180000-9x

x=(242000-180000)/(15-9)

=$10333.33= investment in X(Approx).

Hence investment in Y=20000-10333.33=$9666.67