You have $17,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 10 percent. Assume your goal is to create a portfolio with an expected return of 12.15 percent. How much money will you invest in Stock X and Stock Y

For X = $7,130

For Y = $9,690

Explanation:

The calculation of investment in stock X and stock Y is shown below:-

We assume the weight of investment in stock x = x

Expected return = Weight of x * Return of x + Weight of y * Return of y

12.15 = x * 15 + (1 - x) * 10

12.15 = 15x + 10 - 10x

x = (12.15 - 10) : 5

x = 43%

Investment in stock Y = 100 - 43

= 57%

Now,

Dollar Investment in x = Stock investment * Expected return

= $17,000 * 43%

= $7,130

Dollar Investment in x = Stock investment * Expected return

= $17,000 * 57%

= $9,690

So, we have applied the above formula.