Problem 11-22 Portfolio Expected Return [LO 1] You have $267,000 to invest in a
ID: 2735881 • Letter: P
Question
Problem 11-22 Portfolio Expected Return [LO 1]
You have $267,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 11.8 percent.
If your goal is to create a portfolio with an expected return of 12.85 percent, how much money will you invest in Stock H and in Stock L? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
You have $267,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 11.8 percent.
Explanation / Answer
h expected return is 14.2%
and l expected return is 11.8%
portfolio return is 12.85%
if h investment portion is X and l investment portion is 1-X
12.85= X*14.2+(1-X)*11.8
= 14.2X+11.8-11.8X
1.05= 2.4X
X= 43.75%
So investment portin of l is = 56.25%
h investment = 267,000*43.75%=$ 116,812.5
l investment = 267,000*56.25%=$ 150187.50