Analyzing a Portfolio You have $200,000 to invest in a portfolio containing Stoc
ID: 2633235 • Letter: A
Question
Analyzing a Portfolio
You have $200,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 11.85 percent. Stock X has an expected return of 10.39 percent and a beta of 1.26, and Stock Y has an expected return of 7.01 percent and a beta of .74.
1-How much money will you invest in stock X? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
2-What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))
Explanation / Answer
You have $200,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 11.85 percent. Stock X has an expected return of 10.39 percent and a beta of 1.26, and Stock Y has an expected return of 7.01 percent and a beta of .74.
1-How much money will you invest in stock X? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
Expected return of portfolio = Expected return of Stock X* Weight of Stock X + Expected return of Stock Y* Weight of Stock Y
11.85 = 10.39*Weight of Stock X + 7.01 * (1- Weight of Stock X)
11.85 = 10.39*Weight of Stock X + 7.01 - 7.01*Weight of Stock X
Weight of Stock X = (11.85- 7.01)/3.38
Weight of Stock X = 1.431953
Investment in Stock X = 200000*1.43195266
Investment in Stock X = 286,390.53
2-What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 3 decimal places. (e.g., 32.161))
Beta of your portfolio = Beta of Stock X* Weight of Stock X + Betaof Stock Y* Weight of Stock Y
Beta of your portfolio = 1.26*1.43195266 + 0.74 * - 0.43195266
Beta of your portfolio = 1.485