You have $11,465 to invest in a stock portfolio. Your choices are Stock X with an...

You have $11,465 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14.04 percent and Stock Y with an expected return of 9.86 percent. If your goal is to create a portfolio with an expected return of 11.15 percent, how much money (in $) will you invest in Stock X? Answer to two decimals, carry intermediate calcs. to four decimals.

Expert Solution


	Let the weight of Stock X in the Portfolio be "x".
	So, the weight of Stock Y will be "1-x".

	Now, Portfolio Return will be weighted average return of Stocks in the Portfolio.
	So,

	Portfolio Return
	= Weight of Stock X * Return of Stock X + Weight of Stock Y * Return of Stock Y
	11.15% = x * 14.04% + (1-x) * 9.86%
	11.15% = x * 14.04% + 9.86% - x * 9.86%
	11.15% = x * 4.18% + 9.86%
	x*4.18% = 11.15% - 9.86%
	x*4.18% = 1.29%
	x = 1.29% / 4.18%
	x = 0.308612
	x = 30.8612%

	Weight of Stock X = x = 30.8612%

	Investment in Stock X
	= Total Invetsment * Weight of Stock X
	= $11465 * 30.8612%
	= $3538.24

jeff jeffy answered 2 years ago

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