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24 March, 09:46

You have $1,000,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 18 percent and Stock Y with an expected return of 10 percent. Your goal is to create a portfolio with an expected return of 13 percent. All money must be invested. How much will you invest in Stock X?

A. $450,000

B. $625,000

C. $500,000

D. $375,000

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  1. 24 March, 10:14
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    D. $375,000

    Explanation:

    Expected return of 13% for $1,000,000 will be $130,000

    If we invest $375,000 in Stock X, our expected return based on 18% will be $ 67,500 and the remaining $625,000 will be invested in Stock X, therefore expected return based on 10% will be $ 62,500 and thereby giving the total return of $130,000 which is 13% of $1,000,000 and hence $375,000 will be invested in Stock X
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