Question

You invested $13,711 in Common Stock A, $924 in Common Stock B, $4,419 in Preferred Stock A, $14,864 in Preferred Stock B, $12,583 in a corporate bond, and $403 in a government bond. You sold all investments one year later. Common Stock A showed a rate of return of 9.34%; Common Stock B showed a rate of return of 17.2%; Preferred Stock A had a rate of return of -18.82%; Preferred Stock B had a rate of return of 3.14%; the corporate bond had a rate of return of 14.63%; and, the government bond realized a rate of return of -17.4%. What is the weighted mean of the rate of return for this portfolio?

HINT: Be sure to multiply each rate of return with the amount invested. Weighted return (for each stock, bond, or savings account) = Rate of Return X Amount Invested. Add the weighted returns and divide the total by the total amount invested.

Answer #1

the total amount invested in common stock A : $13,711

weight of stock in portfolio : 29.23% ( weight of stock/ total portfolio ) = 13711/46904 = 29.23%

the total amount invested in common stock B is : $924

weight of stock in portfolio = 1.97%

the total amount invested in preferred stock A= $4419

weight of stock in portfolio = 9.42%

the total amount invested in Preferred stock B = $ 14,864

weight of stock in portfolio = 31.69%

the total amount invested in corporate bond is = $12,583 i.e 26.83% of total portfolio weight

the total amount invested in government bond is = $403 i.e 0.86%

the weighted mean of the rate of return for this portfolio is :

(0.2923 *0.0923) +(0.0197*0.172)+ (0.0942* -0.1882) + (0.3169* 0.0314)+ (0.2683*0.1463) + (0.0086 * -0.174)

= 0.027 + 0.0034 - 0.0177 + 0.0042 + 0.01 - 0.0015 = 6.08%

Percent of capital structure:
Debt
35
%
Preferred stock
20
Common equity
45
Additional information:
Bond coupon rate
11%
Bond yield to maturity
9%
Dividend, expected common
$
5.00
Dividend, preferred
$
12.00
Price, common
$
60.00
Price, preferred
$
120.00
Flotation cost, preferred
$
3.80
Growth rate
8%
Corporate tax rate
40%
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Debt=
Preferred stock=
Common equity=...

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Percent of capital structure:
Debt
10
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Preferred stock
5
Common equity
85
Additional information:
Bond coupon rate
13%
Bond yield to maturity
11%
Dividend, expected common
$
7.00
Dividend, preferred
$
14.00
Price, common
$
70.00
Price, preferred
$
110.00
Flotation cost, preferred
$
2.50
Growth rate
4%
Corporate tax rate
30%
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Preferred
stock
20
%
Common
equity
40
Debt
40
Additional information:
Corporate tax
rate
34
%
Dividend,
preferred
$
8.50
Dividend,
expected common
$
2.50
Price,
preferred
$
105.00
Growth rate
7
%
Bond yield
9.5
%
Flotation cost,
preferred
$
3.60
Price,
common
$
75.00
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Percent of capital structure:
Debt
25
%
Preferred stock
15
Common equity
60
Additional information:
Bond coupon rate
9%
Bond yield to maturity
7%
Dividend, expected common
$
3.00
Dividend, preferred
$
10.00
Price, common
$
50.00
Price, preferred
$
116.00
Flotation cost, preferred
$
8.50
Growth rate
6%
Corporate tax rate
30%
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Percent of capital structure:
Debt
30
%
Preferred stock
10
Common equity
60
Additional information:
Bond coupon rate
18%
Bond yield to maturity
14%
Dividend, expected common
$
8.00
Dividend, preferred
$
15.00
Price, common
$
75.00
Price, preferred
$
112.00
Flotation cost, preferred
$
6.50
Growth rate
3%
Corporate tax rate
35%
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Percent of capital structure:
Debt
20
%
Preferred stock
10
Common equity (retained earnings)
70
Additional information:
Bond coupon rate
14%
Bond yield to maturity
12%
Dividend, expected common
$
2.00
Dividend, preferred
$
9.00
Price, common
$
45.00
Price, preferred
$
100.00
Flotation cost, preferred
$
7.50
Growth rate
9%
Corporate tax rate
35%
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Percent of capital structure:
Preferred stock 20 %
Common equity 40
Debt 40
Additional information:
Corporate tax rate 34 %
Dividend, preferred $ 8.50
Dividend, expected common $ 2.50
Price, preferred $ 105.00
Growth rate 7 %
Bond yield 9.5 %
Flotation cost, preferred $ 3.60
Price, common $ 75.00
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Preferred stock: 10%
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Dividend (common stock)
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Growth rate (common stock)
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Flotation cost (preferred)
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Corporate tax rate
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(for example...

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