You have $100,000 to invest in a portfolio containing stock X, stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13 percent and that has only 70 percent of the risk of the overall market. If X has an expected return of 31 percent and a beta of 1.8, Y has an expected return of 20 percent and a beta of 1.3, and the risk-free rate is 7 percent, how much money will you invest in stock Y? How do you interpret your answer?
You have $100,000 to invest in a portfolio containing stock X, stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13 percent and that has only 70 percent of the risk of the overall market. If X has an expected return of 31 percent and a beta of 1.8, Y has an expected return of 20 percent and a beta of 1.3, and the risk-free rate is 7 percent, how much money will you invest in stock Y? How do you interpret your answer?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You have $100,000 to invest in a portfolio containing
stock X, stock Y, and a risk-free asset. You must invest
all of your money. Your goal is to create a portfolio that
has an expected return of 13 percent and that has only 70
percent of the risk of the overall market. If X has an
expected return of 31 percent and a beta of 1.8, Y has an
expected return of 20 percent and a beta of 1.3, and the
risk-free rate is 7 percent, how much money will you
invest in stock Y? How do you interpret your answer?
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