You are considering how to invest part of your retirement savings.You have decid

Question

You are considering how to invest part of your retirement savings.You have decided to put $200,000

into three stocks: 53% of the money in GoldFinger (currently $19/share), 16% of the money in Moosehead (currently $79/share), and the remainder in Venture Associates (currently $8/share). Suppose GoldFinger stock goes up to $40/share, Moosehead stock drops to $53/share, and Venture Associates stock rises to $9 per share.

a. What is the new value of the portfolio? (round to 2 decimal places)

b. What return did the portfolio earn? (round to 2 decimal places)

c. If you don't buy or sell any shares after the price change, what are your new portfolio weights?

The weight of Goldfinger is now ____% (Round to two decimal places.)

The weight of Moosehead is now ____%. (Round to two decimal places.)

The weight of Venture is now ____% (Round to two decimal places.)

Explanation / Answer

Answer a) Let n be the no of shares in Stock I , then,

N(G) = 200000 x 0.53 / 19 = 5579

N (M) = 200000 x 0.16 / 79 = 405

N(V) = 200000 x 0.31 / 8 = 7750

The new value of the portfolio = 40 x N(G) + 53 x N(M) + 9 x N(V)

= 40 x 5579+53 x 405 +9 x 7750

= 223160 + 21465 + 69750

= $ 314375

b) Return = 314375 / 200000 X 100 = 15.72 %

c) The Portfolio weights are the fraction of value invested in each stock

Gold Finger :- 40 x 5579 /314375= 70.98 %

Moosehead = 405 x 53 / 3134375 = 6.83%

Venture = 7750 x 9 / 3134375 = 2.23 %

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.