Question

The past five monthly returns for PG&E are ?3.29 percent, 4.18 percent, 3.89 percent, 6.65 percent, and 3.70 percent. What is the average monthly return? (Round your answer to 3 decimal places.)

An investor owns $6,000 of Adobe Systems stock, $9,000 of Dow Chemical, and $5,000 of Office Depot. What are the portfolio weights of each stock? (Round your answers to 4 decimal places.)

Answer 1

Average monthly return = Sum of all returns/Divided by number of months

Since the question asks about average monthly return, we would take this to be a simple average (and not geometrics average).

Average monthly return = (?3.29% + 4.18% + 3.89% + 6.65% + 3.70%)/5 = 15.13%/5 = 3.026%. Answer

{Geometric mean return could have been calculated as: [(1?3.29%)*(1+4.18%)*(1 + 3.89%)*(1 + 6.65%)*(1 + 3.70%)]^(1/5) - 1. This would have been equal to 2.971%}

Weight of Adobe Systems stock = 6000/(6000 + 9000 + 5000) = 30%

Weight of Dow Chemical stock = 9000/(6000 + 9000 + 5000) = 45%

Weight of Office Depot stock = 5000/(6000 + 9000 + 5000) = 25%