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Analyzing a portfolio investment

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A $100,000 dollars is available to invest in portfolio containing stock X. stock Y, and a risk-free asset. All of the money must be invested. The goal is to create a portfolio that has an expected return of 12.5 and that has only 60 % of the risk of the overall market. If X has an expected return of 31 % and a beta of 1.8, Y has an expected return of 20 % and a beta of 1.5, and the risk-free rate is 6 %, how much money should be invested in stock X.

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Solution Summary

The solution calculates the amount that should be invested in a certain stock to create a certain portfolio.

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Suppose you invest a proportion x in stock x and proportion y in stock Y and remaining part in risk free asset, you should meet the following two ...

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