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How much money will you invest in stock y

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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? 

Reference no: EM131126405

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Decompose the stock return into the systematic return : The beta for a certain stock is 1.15, the risk-free rate is 5 percent, and the expected return on the market is 13 percent. Complete the following table to decompose the stock's return into the systematic return and the unsystematicreturn.
Which stock has the most systematic risk : The market risk premium is 8 percent, and the risk-free rate is 5 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is "riskier"?Explain.
How much money will you invest in stock y : 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?
Use this information to calculate the security beta : Fill in the following table, supplying all the missing information. Use this information to calculate the security'sbeta.
Calculate beta is to take the covariance : Show that another way to calculate beta is to take the covariance between the security and the market and divide by the variance of the market’s return.
What is the expected return on the market : Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-freerate?
If the risk-free rate is 6 percent and the market risk : Stock Y has a beta of 1.25 and an expected return of 14 percent. Stock Z has a beta of .70 and an expected return of 9 percent. If the risk-free rate is 6 percent and the market risk premium is 7 percent, are these stocks correctly priced?

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