SHOW WORK & FORMULA ! ! ! Question 6. You invest $10,000 in each of three stocks
ID: 2790705 • Letter: S
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SHOW WORK & FORMULA ! ! !
Question 6. You invest $10,000 in each of three stocks and $15,000 in two other stocks. A year later the prices have changed by down 10% down 5% and up 12% on the first three stocks while the last two stocks were up 8% and up 15% respectively. Find the value of this portfolio after 1 year and the growth factor for the portfolio as a whole. If the above percentages were the average annual changes each year for 2 years, what of your investment in each stock? What would would be the value at the end of the two years be the total value of your portfolio after two years and what would the annual growth factor for those two years?Explanation / Answer
Assume investment in the the first three stocks are:
A=$10,000
B=$10,000
C=$10,000
Investment in two other stocks are:
X=$15,000
Y=$15,000
Total investment=(3*10000+2*15000)=$60,000
A year later Value of first three investments will be:
A=(1-0.1)*10000=$9,000
B=(1-0.05)*10,000=$9,500
C=(1-0.12)*10,000=$8,800
Value of these three investment (A,B and C)=9000+9500+8800= $ 27,300
The value of other two investments will be :
X=(1+0.08)*15000=$16,200
Y=(1+0.15)*15000=$17,250
Value of these two investments(X and Y)=16200+17250= $ 33,450
Total value of investments=27300+33450= $ 60,750
Value of the portfolio
$ 60,750
Growth factor as a whole=(60750/60000)-1=0.0125
Growth factor as a whole in percentage=1.25%
Growth factor
0.0125
Growth factor in percentage
1.25%
If the above percentage growth in each of two years:
Value after one year=60000*(1+0.0125)=60000*1.0125= $ 60,750
Value after two years=60000*(1.0125^2)=60750*1.0125= $ 61,509.38
Value at the end of two years
$ 61,509.38
Annual growth factor=1.25%
Value of the portfolio
$ 60,750
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