Question

You are considering how to invest part of your retirement savings. You've decided to put $400,000 into three stocks: 52% of the money in GoldFinger (currently $23/share), 16% of the money in Moosehead (currently $97/share), and the remainder in Venture Associates (currently $1/share). Suppose GoldFinger stock goes up to $32/share, Moosehead stock drops to $68/share, and Venture Associates stock rises to $6 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

Stocks	Weight	Current price ($)	New price ($)
GoldFinger (1)	0.52	23	32
Moosehead (2)	0.16	97	68
Venture Associates (3)	0.32	1	6

a. $1,102,256

No. of shares in Stock (1) = ($400,000 x 0.52) / $23 = 9,043 shares

No. of shares in Stock (2) = ($400,000 x 0.16) / $97 = 660 shares

No. of shares in Stock (3) = ($400,000 x 0.32) / $1 = 128,000 shares

New value of the portfolio = ($32 x 9,043 shares) + ($68 x 660 shares) + ($6 x 128,000 shares)

New value of the portfolio = 289,376 + 44,880 + 768,000

New value of the portfolio = $1,102,256

b. 175.564%

Return on portfolio = (1,102,256 - 400,000) / 400,000 = 175.564%

c.

Weight of Stock (1) = ($32 x 9,043 shares) / $1,102,256 = 26.25%

Weight of Stock (2) = ($68 x 660 shares) / $1,102,256 = 4.07%

Weight of Stock (3) = ($6 x 128,000 shares) / $1,102,256 = 69.68%