You are examining a portfolio consisting of 3 stocks. Using the data in the tabl

Question

You are examining a portfolio consisting of 3 stocks. Using the data in the table a. Compute the annual returns for a portfolio with 25% invested in North Air, 20% invested in West Air, and 55% invested in Tex Oil. b. What is the lowest annual return for your portfolio in part (a)? How does it compare with the lowest annual return of the individual stocks or portfolios in the table above. a. Compute the annual returns for a portfolio with 25% invested in North Air, 20% invested in West Air, and 55% invested in Tex Oil. The annual return for 2010 will be (Round to two decimal places.) Year North AirWest Air Tex Oil Portfolio 2010 20% 9% The annual return for 2011 will be: (Round to two decimal places.) Year North AirWest Air Tex Oil Portfolio 2011 30% 20% -6% The annual return for 2012 will be (Round to two decimal places.) Year North Air West Air Tex Oil Portfolio 2012 6% 6% 9% The annual return for 2013 will be (Round to two decimal places.) Year North Air West Air Tex Oil Portfolio 2013 -6% 1% 20% The annual return for 2014 will be (Round to two decimal places.) Year North Air West Air Tex Oil Portfolio 2014 30% The annual return for 2015 will be (Round to two decimal places.) Year North Air West Air Tex Oil Portfolio 696| |% 2015 9% 30% b. What is the lowest annual return for your portfolio in part (a)? How does it compare with the lowest annual return of the individual stocks or portfolios in the table above. (Select all the choices that apply.) A. The portfolio computed in part (a) had its lowest annual return in 2010 (6.25%). B. The portfolio computed in part (a) had its lowest annual return in 2011 (8.20%) C. D. This is lower than each individual stock and the other portfolios in the table above as well. This is higher than the lowest annual return of each individual stock and the other portfolios in the table above as well. Enter any number in the edit fields and then continue to the next question

Explanation / Answer

solution:

a) SInce, the investment is done in 3 different stocks the returns will calculated giving the weight of the percentage of investment made in different stocks.So,the return from the portfolio in the following years will be as follows :

year Particulars return from portfolio

2010 20%*0.25 + 9%*0.20 + (-1)%*0.55 = 6.25%

2011 30%*0.25 + 20%*0.20 + (-6)%*0.55 = 8.20%

2012 6%*0.25 + 6%*0.20 + 9%*0.55 = 7.65%

2013 (-6)%*0.25 + (-1)*0.20 + 20%*0.55 = 9.3%

2014 (-1)%*0.25 + (-6)%*0.2 + 30%*0.55 = 15.05%

2015 9%*0.25 + 30%*0.2 + 6%*0.55 = 10.8%

b) The lowest annual return for the portfolio among other portfolios is 6.25% incurred in the year 2010.  

The second part of the question is asking to select the options which compare the lowest annual return of the individual stock or portfolio in the above table.

So, looking to the option A that says the portfolio had its lowest annual return in 2010(6.25%) is correct (can be seen clearly from the solution of part a) so this option will be selected.

Option B says the lowest return is in year 2011(8.20%) which cannot be applied as the lowest return is 6.25% in year 2010.So, this won't be selected.

Option C says that the lowest return is lower than each individual stock ant the other portfolio is not comparable since returns from individual stock is sometimes much lower than 6.25% and also this is lowest in all the portfolio.SO, this will also not selected.

Option D says the lowest return is higher than the lowest annual return of each individual stock which is true but that is not higher than the other portfolio.So. this is partially comparable.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

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