Question

An investor created an equal weighted portfolio of AMZN, IMB, AAA and DAE on July 1, 2016. These stocks did not pay any dividends during the period in this problem.
The returns on the stocks in July 2016 were 7.6%, -2:1%, 6.8%, and 1.8%, respectively.

(a) What was the portfolio return in July 2016?

The returns on the stocks in August 2016 were 2.4%, -4:8%, 3.1%, 5.2%.
(b) What would be the portfolio return in August 2016 if the portfolio is not rebalanced.
(c) What would be the portfolio return in August 2016 if the portfolio is rebalanced to its
weights on July 1, 2016.

Answer 1

answer a
stock	weight	retun	weighted return
AMZN	0.25	7.6	1.9
IMB	0.25	2.1	0.525
AAA	0.25	6.8	1.7
DAE	0.25	1.8	0.45
			4.575
Return on portfolio in july			4.575%
answer b
if portfolio not balanced
stock	weight	return	weighted return
AMZN	1.9	2.4	4.56
IMB	0.525	4.8	2.52
AAA	1.7	3.1	5.27
DAE	0.45	5.2	2.34
			14.69
Return on portfolio in august=			14.6900%
answer c
if portfolio is balanced
stock	july end value	equal weight	return	weighted return
AMZN	1.9	1.14375	2.4	2.745
IMB	0.525	1.14375	4.8	5.49
AAA	1.7	1.14375	3.1	3.545625
DAE	0.45	1.14375	5.2	5.9475
	4.575			17.72813
return=	17.7281%