Question

You have $10,000 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 8 percent. Your goal is to create a portfolio with an expected return of 12.4 percent. All money must be invested. How much will you invest in stock X?

Answer 1

Answer:  $6,285.71

Explanation:

$10,000 to be invested.

The portfolio expected return is a weighted average of the two stocks.

Preferred return = 12.4%

$0.124 = \frac{0.15X + 0.08(10,000 - X) }{10,000}$

1,240 = 0.15X + 800 - 0.08X

1,240 -800 = 0.07X

0.07X = 440

X = $6,285.71

Invest $6,285.71 in Stock X.