You have K.440,000 to invest in a stock portfolio. Your choices are stock A with an...

You have K.440,000 to invest in a stock portfolio. Your choices are stock A with an expected return of 22% and stock B with an expected return of 14%. If your goal is to create a portfolio with an expected return of 18.8%, how much money will you invest in stock A? In Stock B?v

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Expert Solution

Let investment in A=x

Hence investment in B=(440,000-x)

Portfolio return=Respective return*Respective weight

18.8=(x/440,000*22)+(440,000-x)/440,000*14

(18.8*440,000)=22x+(440,000-x)*14

8,272,000=22x+6,160,000-14x

x=(8,272,000-6,160,000)/(22-14)

=264,000=investment in A

Hence investment in B=(440,000-x)

=176,000

jeff jeffy answered 2 years ago

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