You are contemplating investing in two stocks ABC and XYZ that have an expected return of 12.0% and 9.0%, respectively.If your target expected return is 10.0%, what would be the weight in ABC?
A)50%
B)33%
C)67%
D)100%

Question

Quizplus · Accepted Answer

To find the weight in ABC, we need to use the formula: Weight in ABC = (Target expected return - Expected return in XYZ) / (Expected return in ABC - Expected return in XYZ)
Weight in ABC = (10% - 9%) / (12% - 9%) = 1/3 or 0.33
Therefore, the weight in ABC is 33%, making choice B the best answer.

You Are Contemplating Investing in Two Stocks ABC and XYZ