Question

1) You own a portfolio that has $2,100 invested in Stock A and $4,000 invested in Stock B. If the expected returns on these stocks are 9 percent and 18 percent, respectively, what is the expected return on the portfolio?

12.10%

15.20%

13.50%

15.65%

14.90%

2) You have $10,000 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 7 percent. 1) if your goal is to create a portfolio with an expected return of 10.4 percent, how much money will you invest in Stock X? $ 5,100 $ 4614 $ 4857 $ 14,857 $5051 b) If your goal is to create a portfolio with an expected return of 10.4 percent, how much money will you invest in Stock Y? $5143 $5400 $4886 $5349 $4937

Answer 1

Ans 1) 14.90%

Stock	INVESTMENT (i)	Return (ii)	Investment*Return (i)* (ii)
A	2,100	9.00%	189.00
B	4,000	18.00%	720.00
Total	6,100		909.00
AVERAGE RETURN =	(INVESTMENT * RETURN) / TOTAL INVESMENT * 100
	909 / 6100 * 100
	14.90%

Ans 2)

1) $4857

2) $5143

Total Investment =	10000
Investment In Y =	10000 - X
Return on X + Return on Y =	Return on Portfolio
X * 14% + (10000 - X) * 7% =	10000 * 10.4%
7%*X + 700 =	1040
X =	(1040 - 700) / 7%
X =	4857
Investment In Y =	10000 - X
Investment In Y =	10000 - 4857
Investment In Y =	5143