Question

Denver Investment Company has been creating portfolios for minimizing risk on securities held by it. The following portfolio was created by the company in June 2018:

Security	Number	Value	Returns
Security X	800	$12	8%
Security Y	400	$14	---
Total	1,200

The overall return on the portfolio is 7.24%.

REQUIRED: Calculate the individual return earned by security Y.

Answer 1

Solution: Investment in security X = number of securities × value

= 800 × $12 = $9,600

Investment in security Y = 400 × $14 = $5,600

Total investment = $15,200

8% Return is on security X: Amount of return = $9,600 × 8/100 = $768

7.24% Return is on total investment: Amount of return = $15,200 × 7.24/100 = $1100.48

Total amount of return = amount of return on security X + amount of return on security Y

$1100.48 = $768 + amount of return on security Y

Amount of return on security Y = $1100.48 - $768 = $332.48

Let us calculate percentage return on security Y that means what %age of $5600 is equal to $332.48. Suppose it is x% then:

Percentage return on security Y = $5600 × x/100 = $332.48

56X = $332.48

X = 332.48/56 = 5.94

Percentage return on security Y = 5.94%