In: Finance
Consider a world that only consists of the three stocks shown in the following table:
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a. Calculate the total value of all shares outstanding currently.
b. What fraction of the total value outstanding does each stock make up?
c. You hold the market portfolio, that is, you have picked portfolio weights equal to the answer to part b with each stock's weight is equal to its contribution to the fraction of the total value of all stocks. What is the expected return of your portfolio?
Stock
Total Number
of Shares Outstanding
Current Price per Share
Expected Return
First Bank
101101 million
$8282
2020%
Fast Mover
5959 million
$132132
1313%
Funny Bone
190190 million
$3232
1414%
First Bank | Fast Mover | Funny Bone | ||
Shares outstanding | 101000000 | 59000000 | 190000000 | |
Price per share | 82 | 132 | 32 | |
Expected return | 20% | 13% | 14% | |
a | Value of shares | 8282000000 | 7788000000 | 6080000000 |
Total value | 22150000000 | |||
b | Fraction | 0.3739 | 0.3516 | 0.2745 |
c | Expected return | 15.89% |
WORKINGS