Question

You have $12,000 to invest and would like to create a portfolio with an expected return of 9.75 percent. You can invest in Stock K with an expected return of 8.05 percent and Stock L with an expected return of 11.7 percent. How much will you invest in Stock K

Answer 1

Answer:

The multiple choices are:

$5,589.04

$7,452.05

$4,890.41

$5,876.71

$6,410.96

Amount invested in K is $6,410.96  

Explanation:

L+K=12,000

from the return perspective

0.0975=K/12000*0.0805+L/12000*0.117

K=12000-L

Substitute for K in the second equation

0.0975=(12000-L)/12000*0.0805+L/12000*0.117

0.0975=(966-0.0805L)/12000+0.117L/12000

0.0975=(966-0.0805L+0.117L)/12000

12000*0.0975=966+0.0365 L

1170 -966=0.0365L

204=0.0365L

L=204/0.0365

L=$ 5,589.04  

K=$12,000-$ 5,589.04  

K=$6,410.96