Problem 13-25 Analyzing a Portfolio [LO2, 4]

You have $136,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 18 percent. Stock X has an expected return of 16 percent and a beta of 1.38, and Stock Y has an expected return of 11.0 percent and a beta of 1.14.

How much money will you invest in stock Y? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign.)

Investment in Stock Y

$

What is the beta of your portfolio? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.)

Beta of the portfolio

Problem 13-26 Systematic versus Unsystematic Risk [LO3]

Consider the following information about Stocks I and II:

				Rate of Return If State Occurs
State of	Probability of
Economy	State of Economy			Stock I			Stock II
Recession		.20			.05			.22
Normal		.55			.20			.09
Irrational exuberance		.25			.08			.42

The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent. )

The standard deviation on Stock I's return is percent, and the Stock I beta is . The standard deviation on Stock II's return is percent, and the Stock II beta is . Therefore, based on the stock's systematic risk/beta, Stock (Click to select)III is "riskier".