Answer:$20,000 will be invested in StocK F
Explanation:
The expected return of portfolio is calculated as
Portfolio Expected Return = (wD x rD) + (wF x rF) + (wR x rR) ............................
Where;
Portfolio expected return = 11.4%
wD = Weight of the amount invested in Stock D which is calculated as
Amount invested in Stock D / Total amount invested
= $50,000 / $100,000 = 0.50
rD = Expected Return from Stock D = 14.9%
wF = Weight of the amount invested in Stock F= ?
rF = Expected Return from StocK F = 10.8%
wR = Weight of the amount invested in risk free = one minus the weight of the other two assets= 1 - wD - wF = 1 - 0.50 - wF = 0.50 - wF
rR = Expected Return from Risk free = 5.95%
Putting all the values into the equation, we
that
0.114= (0.50 x 0.149) + (wF x 0.108) + ((0.50 - wF) x 0.0595
0.114= 0.0745 + (wF x 0.108) +0.02975 -0.0595wF
0.114- 0.0745 =wF 0.108 +0.02975 -0.0595wF
0.114- 0.0745--0.02975=wF 0.108-0.0595wF
0.00975=wF (0.108-0.0595)
0.00975=wF 0.0485
wF == 0.00975/0.0485
wF==0.2010 rounded to 0.20
Recall that wF = Amount invested in Stock F / Total amount invested
0.20= Amount invested in Stock F / $100,000
Amount invested in Stock F = 0.20x $100,000 = $20,000
Therefore, $20,000 will be invested in StocK F
