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13Your investment portfolio has 15,000 shares of Fairfax Paint, which has an expected return of 5.67...

13Your investment portfolio has 15,000 shares of Fairfax Paint, which has an expected return of 5.67 percent and a price of 7.2 dollars per share, and 20,000 shares of Litchfield Design, which has a price of 2.6 dollars per share. If your portfolio has an expected return of 8.66 percent, then what is the expected return for Litchfield Design? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

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Answer #1

Investment in Fairfax Paint = 15,000 * 7.2 = 108,000

Investment in Litchfield Design = 20,000 * 2.6 = 52,000

Total Investment = 160,000

Expected Return = Return on Fairfax Paint * Weight of Fairfax Paint + Return on Litchfield * Weight of Litchfield

8.66% = 5.67% * 108,000 / 160,000 + Return on Litchfield * 52000 / 160,000

8.66% = 3.82725% + Return on Litchfield * 0.325

Return on Litchfield = (8.66% - 3.82725%) / 0.325

Return on Litchfield = 4.83275% / 0.325

Return on Litchfield = 14.87%

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