Chapter 11, Problem 24QAP

Summary Introduction

Adequate information:

Total investment $\left({\text{I}}_{\text{T}}\right)$ = $100,000

Portfolio expected return $\left({\text{ER}}_{\text{P}}\right)$ = 0.127

Stock X expected return $\left({\text{ER}}_{\text{X}}\right)$ = 0.114

Stock Y expected return $\left({\text{ER}}_{\text{Y}}\right)$ = 0.0868

Stock X beta $\left({\text{β}}_{\text{X}}\right)$ = 1.25

Stock Y beta $\left({\text{β}}_{\text{Y}}\right)$ = 0.85

To compute: Investment in Stock Y and beta of the portfolio. Also, to interpret the results.

Introduction: Stock investment refers to the money invested in a particular stock. Portfolio beta refers to the systematic risk of the entire investment portfolio.