Question

Problem 13-4 Portfolio Expected Return [LO1] You have $18,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.18 percent, how much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations. Round your answer to the nearest dollar, e.g., 32.) Amount invested Stock X $ Stock Y A A

Answer 1

Portfolio Return is equal to weighted average return

Let amount invested in Stock X be x

X*13% + (18,000-x)*11% = 12.18%*18,000

0.13 x + 1980 – 0.11x = 2192.4

X = $10,620

Hence, Amount invested is

Stock X = $10,620

Stock Y = $7,380