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A mutual fund is an investment vehicle that allows investors, by pooling their money together, to own a diversified portfolio of stocks with a relatively

A mutual fund is an investment vehicle that allows investors, by pooling their money together,
to own a diversified portfolio of stocks with a relatively small investment (equivalent owning a
fractional number of shares of a large number of companies). Suppose you want to keep 50% of
your portfolio in a particular mutual fund which has an expected return of 10%. There are also
two companies youve done investment research on, whose stocks youd like to invest in
separately. Stock A has an expected return of 16%, while stock B has an expected return of 19%.
If youd like your whole portfolio (including your ownership of the mutual fund) to have an
expected return of 14%, what percentage of your total portfolio should you invest in stocks A
and B respectively?
A. Invest -50% of your portfolio value in Stock A and 200% in Stock B
B. Invest 16.7% of your portfolio value in Stock A and 33.3% in Stock B
C. Invest 16.7% of your portfolio value in Stock A and 83.3% in Stock B
D. Invest 39.5% of your portfolio value in Stock A and 10.5% in Stock B
E. Invest 60.5% of your portfolio value in Stock A and 30.5% in Stock B

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