Question

You are considering how to invest part of your retirement savings.You have decided to put $500000 into three stocks: 67% of the money in GoldFinger (currently $25 /share), 22% of the money in Moosehead (currently $80/share), and the remainder in Venture Associates (currently $7/share). Suppose GoldFinger stock goes up to $38 /share, Moosehead stock drops to $60 /share, and Venture Associates stock rises to $15 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

NO of Shares bought = Amount invested * Weight of Stock / value per share

Gold Finger = 500,000 * 67% / 25 = 13400 shares

Moosehead = 500,000 * 22% / 80 =  1375 shares

Venture Associate = 500,000 * 11% / 7 =  7857 shares

Answer a)

New Value of Portfolio = 13400 * 38 + 1375 * 60 + 7857 * 15

= 709555

Answer b)

Return =  709555 - 500,000 / 500,000 = 41.91%

Answer c)

New investment Value

Goldfinger = 13400 * 38 = 509200

Moosehead = 1375 * 60 = 82500

Venture Associate = 7857 * 15 = 117855

Total Investment = 709555

New Weights

Goldfinger = 509200 / 709555 = 71.76%

Moosehead = 82500 / 709555 = 11.63%

Venture Associate = 117855 / 709555 = 16.61%