P11-2 (similar to) Question Help You own three stocks: 600600 shares of Apple Co

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P11-2 (similar to)

Question Help

You own three stocks:

600600

shares of Apple Computer,

10 comma 00010,000

shares of Cisco Systems, and

5 comma 0005,000

shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively,

$ 524$524,

$ 19$19,

$ 98$98

and

12 %12%,

10 %10%,

8 %8%.

a. What are the portfolio weights of the three stocks in your portfolio?

b. What is the expected return of your portfolio?

c. Suppose the price of Apple stock goes up by

$ 30$30,

Cisco rises by

$ 7$7,

and Colgate-Palmolive falls by

$ 12$12.

What are the new portfolio weights?

d. Assuming the stocks' expected returns remain the same, what is the expected return of the portfolio at the new prices?

a. What are the portfolio weights of the three stocks in your portfolio?

The portfolio weight of Apple Computer is

nothing%.

(Round to two decimal places.)

P11-2 (similar to)

Question Help

Explanation / Answer

Ans. Calculation of Weight of portfolio

Stock Value Weight

Apple value (600X524) = $314400 .32

Cisco system (10000X19) = $190000 .19

Colgage (5000X98) = $490000 .49

Total value = $994400 1

b. Calculation of portfolio return = 12X.32+10X.19+8X.49 =3.84+1.9+3.92 =$9.66

c. New price of apple (524+30) =$554

New price of cisco (19+7) =$26

New price of Colgate (98-12) =$86

Calculation of weight of new portfolio

Stock Value Weight

Apple (554X600) = $332400 .33

Cisco (26X10000) = $260000 .25

Colgate (5000X86) = $430000 .42

Total value = $1022400 1

d. Calculation of return of revised portfolio = 12*.33+10*.25+8*.42 = 3.96+2.5+3.36 = 9.82%

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