You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury notes that pay 5% and a risky portfolio, P, constructed with two risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%. If you decide to hold 25% of your complete portfolio in the risky portfolio and 75% in the Treasury notes then the dollar values of your positions in X and Y respectively would be ________ and ________.
A)$300, $450
B)$150, $100
C)$100, $150
D)$450, $300

Question

Quizplus · Accepted Answer

The investment in the risky portfolio is 25% of $1000, which is $250. In the risky portfolio, 60% is invested in X and 40% in Y. Therefore, $150 is invested in X (60% of $250) and $100 in Y (40% of $250).

You Are Considering Investing $1000 in a Complete Portfolio