Question

The price of Apple is $183 per share and that of Amazon is $728 per share. The price of Apple increases to $212 per share after one year and to $257 after two years. Also, shares of Amazon increase to $814 after one year and to $883 after two years. If your portfolio comprises 100 shares of Apple and 75 shares of Amazon, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

Answer 1

HI

Here Current Share price of Apple = $183

After one year share price = $212

so return on Apple in Y1 = (212-183)/183 = 15.85%

same way return on Amazon in Y1 = (814-728)/728 = 11.81%

Portfolio apple shares = 100

Amazon shares = 75

so Apple shares % = 100/175 = 57.14%

amazon shares = 42.86%

Hence Portfolio return in Y1 = 57.14%*15.85 + 42.86%*11.81 = 14.12%

Apple return in Y2 = (257-212)/212 = 21.23%

Amazon return in Y2 = (883-814)/814 = 8.48%

Hence portfolio return in Y2 = 57.14%*21.23 + 42.86%*8.48 = 15.76%

Thanks