A stock market comprises 5000 shares of stock A and 2000 shares of stock B.Assume the share prices for stocks A and B are $20 and $35,respectively.If you have $15,000 to invest and you want to hold the market portfolio,how much of your money will you invest in Stock A?

Question

Quizplus · Accepted Answer

To hold the market portfolio, we need to invest proportionally in each stock based on their market values.

Market value of Stock A = 5000 x $20 = $100,000
Market value of Stock B = 2000 x $35 = $70,000

Total market value = $100,000 + $70,000 = $170,000

Therefore, the proportion of the portfolio to be invested in Stock A is:

($100,000/$170,000) x 100% = 58.82%

To invest $15,000 in the market portfolio, we need to allocate:

58.82% x $15,000 = $8,823.53 to Stock A.

Therefore, the best choice is B.

A Stock Market Comprises 5000 Shares of Stock a and 2000