What are the portfolio weights for a portfolio that has 200 shares of Stock A th

ID: 2624294 • Letter: W

Question

What are the portfolio weights for a portfolio that has 200 shares of Stock A that sell for $97 per share and 175 shares of Stock B that sell for $134 per share? (Round your answers to 4 decimal places (e.g., 32.1616).)

You own a portfolio that has $2,500 invested in Stock A and $3,600 invested in Stock B. Assume the expected returns on these stocks are 10 percent and 16 percent, respectively.

What is the expected return on the portfolio? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Portfolio weight

Stock A

(200*97)/[(200*97) + (175*134)]

= 0.45

= 45%

Stock B

(175*134)/[(200*97) + (175*134)]

= 0.55

= 55%

Weight of Investment in Stock-A [Wa]= 2500/(2500+3600) = 0.41

Weight of Investment in Stock-B = [Wb] 3600/(2500+3600) = 0.59

Expected Return on Stock-A [Ra] = 10%

Expected Return on Stock-B [Rb] = 16%

The expected return on the portfolio = Ra*Wa + Rb*Wb

= (10*0.41) + (16*0.59)

= 13.54%