Question

The price of Microsoft is $37 per share and that of Apple is $43 per share. The price of Microsoft increases to $42 per share after one year and to $47 after two years. Also, shares of Apple increase to $49 after one year and to $59 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

A) 13.06%, 14.84%

B) 10.31%, 18.96%

C) 13.75%, 16.48%

D) 11.69%, 19.78%

Answer 1

Stock	Quantity	Price (year 0)	Current Value	Price (year 1)	Value at the end of year 1	Price (year 2)	Value at the end of year 2
Microsoft	100	37	3700	42	4200	47	4700
Apple	100	43	4300	49	4900	59	5900
	Portfolio Value		8000		9100		10600

Portfolio returns for year 1 = value at the end of year 1 / current value - 1 = 9100 / 8000 - 1 = 13.75%

Portfolio returns for year 2 = value at the end of year 2 / value at the end of year 1 - 1 = 10600 / 9100 - 1 = 16.48%

Therefore option C is correct.

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