Question

You are considering how to invest part of your retirement savings.You have decided to put $600,000 into three? stocks: 64% of the money in GoldFinger? (currently $22?/share), 22% of the money in Moosehead? (currently $93?/share), and the remainder in Venture Associates? (currently $2?/share). Suppose GoldFinger stock goes up to $36?/share, Moosehead stock drops to $68?/share, and Venture Associates stock rises to $3 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

Now, the weight in 3 stocks G, M and V are 64%, 22% and 14%(=1-64%-22%) respectively.

This means, the initial value of the 3 stocks is as follows:

G: 64% * 600,000 = 384,000. At initial price of $22, this means 17,455 shares are purchased

M: 22% * 600,000 = 132,000. At initial price of $93, this means 1,419 shares are purchased

V: 14% * 600,000 = 84,000. At initial price of $2, this means 42,000 shares are purchased

Now, with change in prices

G: 17,455 shares @ $36 becomes investment value of $628,364

M: 1,419 shares @ $68 becomes investment value of $96,516

V: 42,000 shares @ $3 becomes investment value of $126,000

**New Value of Portfolio is sum of all the new investment
values = $850,880**

**Portfolio return = (850,880 - 600,000)/600,000 =
42%**

**New Portfolio weights:**

**G: 628,364/850,880 = 73.8%**

**M: 96,516/850,880 = 11.3%**

**V: 126,000/850,880 = 14.8%**

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