Question

The market comprises of three stocks, as detailed below: Price # of shares A $20/sh. 1,000 B $30/sh. 5,000 C $15/sh. 2,000 Jack plans to invest $10,000 in the market portfolio. How much will he invest in each stock?

Answer 1

Total Market consists of :-

Shares of A - $20 x 1000 = $20,000

Shares of B - $30 x 5000 = $1,50,000

Shares of C - $15 x 2000 = $30,000

Total market is valued at $2,00,000 ( $20,000 + $1,50,000 + $30,000)

So, we have to invest $10,000 i.e 0.05 of Market Value( $10000/ $2,00,000). So, we will invest in that proportion in gthe shares of A,B and C.

Proposed Investment:-

Shares of A - 1000 x 0.05 = 50

Shares of B - 5000 x 0.05 = 250

Shares of C - 2000 x 0.05 = 100

so, the value of shares of A in the portfolio = 50 x $20 = $1000

the value of shares of B in the portfolio = 250 x $30 = $7500

the value of shares of C in the portfolio = 100 x $15 = $1500