Question

You have $250,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14 percent, and Stock L, with an expected return of 10.1 percent.

If your goal is to create a portfolio with an expected return of 12 percent, how much money will you invest in Stock H and in Stock L? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Investment in Stock H		$
Investment in Stock L		$

Answer 1

Let investment in H be X

Investment in L be 250,000 - X

0.12 = (X / 250,000)*0.14 + [(250,000 - X) / 250,000]*0.101

0.12 = 0.14X/250,000 + 0.101 - X0.101/250,000

0.019 = 0.14X/250,000 - X0.101/250,000

4,750 = 0.14X - 0.101X

4,750 = 0.039X

X = $121,794.87

Investment in stock H is $121,794.87

Investment in stock Y = $250,000 - $121,794.87 = $128,205.12