Question

26 .S and T are two portfolios on the efficient frontier, the following table summarizes the weights of five stock in each portfolio: Stock Stock Weights for Portfolio S Stock Weights for Portfolio T Expected Return INTC 20% 20% 15% MRK 20% 30% 25% MSFT 30% 20% 10% APPL 15% 0% 8% JPM 15% 30% 14% a) Find the expected return of each portfolio. b) Ouday invests $500,000 in portfolio S and $800,000 in portfolio T. 1) What amount of his portfolio will be invested in each stock? 2) Find the expected return of Ouday’s portfolio.

please , i need the answer quickly , thank you ...

Answer #1

Expected Return on portfolio = Weights of stock in portfolio * expected return of the stocks

Stocks |
Stock Weight for Portfolio S (
A) |
Stock Weight for Portfolio T (
B) |
Expected Return (C
) |
Expected Return on Portfolio S
( D = A*C) |
Expected Return on Portfolio T
( D = B*C) |

INTC | 0.2 | 0.2 | 15 | 3.0 | 3.0 |

MRK | 0.2 | 0.3 | 25 | 5.0 | 7.5 |

MSFT | 0.3 | 0.2 | 10 | 3.0 | 2.0 |

APPL | 0.15 | 0 | 8 | 1.2 | 0.0 |

JPM | 0.15 | 0.3 | 14 | 2.1 | 4.2 |

Total - |
14.3 |
16.7 |

**Expected Return on
Portfolio S = 14.3%**

**Expected Return on
Portfolio T = 16.7%**

Stock |
Stock Weight for Portfolio S (
A) |
Amount Invested by Ouday in
each stock ( A * 500000) |

INTC | 0.2 | $100,000 |

MRK | 0.2 | $100,000 |

MSFT | 0.3 | $150,000 |

APPL | 0.15 | $75,000 |

JPM | 0.15 | $75,000 |

Total |
$500,000 |

Stock |
Stock Weight for Portfolio T (
B) |
Amount Invested by Ouday in
each stock ( A * 500000) |

INTC | 0.2 | $160,000 |

MRK | 0.3 | $240,000 |

MSFT | 0.2 | $160,000 |

APPL | 0 | $0 |

JPM | 0.3 | $240,000 |

Total |
$800,000 |

Expected Return on Oudays Portfolio = (500000* 14.3 + 800000 *16.7 ) / ( 500000 +800000)

= ( 7150000 + 13360000) / 1300000

= 20510000 / 1300000

= **15.77%**

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