Question

You are considering how to invest part of your retirement savings.You have decided to put $500,000 into three? stocks: 55 % of the money in GoldFinger? ($22?/share), 15% of the money in Moosehead? (currently $78?/share), and the remainder in Venture Associates? (currently $10?/share). Suppose GoldFinger stock goes up to $40?/share, Moosehead stock drops to $65?/share, and Venture Associates stock rises to $16 per share.

a. What is the new value of the? portfolio?

b. What return did the portfolio? earn?

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

Answer 1

First, et us calculate the fund in each stock - GF (Goldfinger), MH (Moosehead) and Venture Associated (VA).

Of a portfolio of $550,000:

GF: 55%. 55% of $550,000 = $302,500. Number of Shares at $22 per share = 302,500/22 = 13,750

MH: 15%. 15% of $550,000 = $82,500. Number of Shares at $78 per share = 82,500/78 = 1,058

VA: 30%. 30% of $550,000 = $165,000. Number of Shares at $10 per share = 165,000/10 = 16,500

Now, with price change, value of each stock:

GF: 13,750 shares @$40 = $550,000

MH: 1,058 shares @$65 = $68,750

VA: 16,500 shares @$16 = $264,000

Adding these new stock values, New Portfolio Value = $882,750

Portfolio Return = (882,750 - 550,000)/550,000 = 61%

New Weights:

GF: 550,000/882,750 = 62.3%

MH: 68,750/882,750 = 7.8%

VA: 264,000/882,750 = 29.9%