Question

Security $ Invested Expected Return 1 $5,000   7% 2 $7,000   9% 3 $9,000 12% Give the data above: What is the weight of Security 1?  (Show your work.  Label %.  One decimal place required.  Highlight or bold your answer.)   What is the weight of Security 2?  (Show your work.  Label %.  One decimal place required.  Highlight or bold your answer.)   What is the weight of Security 3?  (Show your work.  Label %.  One decimal place required.  Highlight or bold your answer.)   What is the expected return on the portfolio?  (

Answer 1

(1)-Weight of Security 1

Total Amount Invested = $21,000 [$5,000 + $7,000 + $9,000]

Weight of Security 1 = [Amount invested in Security 1 / Total Amount Invested] x 100

= [$5,000 / $21,000] x 100

= 23.8%

(2)-Weight of Security 2

Weight of Security 2= [Amount invested in Security 1 / Total Amount Invested] x 100

= [$7,000 / $21,000] x 100

= 33.3%

(3)-Weight of Security 3

Weight of Security 3 = [Amount invested in Security 1 / Total Amount Invested] x 100

= [$9,000 / $21,000] x 100

= 42.9%

(4)-Expected Return on the Portfolio

Expected Return on the Portfolio = (Return on Security 1 x Weight of Security 1) + (Return on Security 2 x Weight of Security 2) + (Return on Security 3 x Weight of Security 3)

= [7% x 0.2380] + [9% x 0.333] + [12% x 0.429]

= 1.67% + 3.00% + 5.14%

= 9.81%