Question

You invested $13,711 in Common Stock A, $924 in Common Stock B, $4,419 in Preferred Stock...

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.

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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%

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