If an investor wants to achieve an average return of 8% on their portfolio of $5

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What’s inside this PDF?

Question: If an investor wants to achieve an average return of 8% on their portfolio of $5000, how much should they invest in a stock that returns 10%?

Options:

$2000
$2500
$3000
$3500

Correct Answer: $2500

Solution:

Let x be the amount invested in the stock. Then, 0.1x + 0.08(5000 - x) = 0.08 * 5000. Solving gives x = $2500.

If an investor wants to achieve an average return of 8% on their portfolio of $5

Practice Questions

If an investor wants to achieve an average return of 8% on their portfolio of $5000, how much should they invest in a stock that returns 10%?

$2000
$2500
$3000
$3500

Questions & Step-by-Step Solutions

If an investor wants to achieve an average return of 8% on their portfolio of $5000, how much should they invest in a stock that returns 10%?

Step 1: Understand that the investor has a total portfolio of $5000 and wants an average return of 8%.
Step 2: Let 'x' be the amount of money the investor will put into the stock that returns 10%.
Step 3: The remaining amount in the portfolio will be '5000 - x', which will earn an average return of 8%.
Step 4: Write the equation for the total return: The return from the stock is 10% of 'x', which is 0.1x. The return from the rest of the portfolio is 8% of '5000 - x', which is 0.08(5000 - x).
Step 5: Set up the equation: 0.1x + 0.08(5000 - x) = 0.08 * 5000.
Step 6: Simplify the equation: 0.1x + 0.08 * 5000 - 0.08x = 0.08 * 5000.
Step 7: Combine like terms: 0.1x - 0.08x = 0.08 * 5000 - 0.08 * 5000, which simplifies to 0.02x = 0.
Step 8: Solve for 'x': Since 0.02x = 0, we find that x = $2500.
Step 9: Conclusion: The investor should invest $2500 in the stock that returns 10%.

Weighted Average Return – The question tests the understanding of how to calculate the weighted average return of a portfolio based on different investment amounts and their respective returns.
Algebraic Manipulation – The question requires the ability to set up and solve an equation involving variables to find the amount to invest.

If an investor wants to achieve an average return of 8% on their portfolio of $5

What’s inside this PDF?

If an investor wants to achieve an average return of 8% on their portfolio of $5

Practice Questions

Questions & Step-by-Step Solutions

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