Question

You are considering how to invest part of your retirement savings.You have decided to put $ 200 comma 000 into three? stocks: 67 % of the money in GoldFinger? (currently $ 22?/share), 9 % of the money in Moosehead? (currently $ 77?/share), and the remainder in Venture Associates? (currently $ 4?/share). Suppose GoldFinger stock goes up to $ 33?/share, Moosehead stock drops to $ 68?/share, and Venture Associates stock rises to $ 9 per share.

a. What is the new value of the? portfolio?

b. What return did the portfolio? earn?

c. If you? don't buy or sell any shares after the price? change, what are your new portfolio? weights?

Answer 1

no. of shares in GoldFinger, n1 = (200,000*67%)/$22 = (0.67*200,000)/22 = 6090.9090

no. of shares in Moosehead, n2 = (200,000*9%)/$22 = (0.09*200,000)/77 = 233.7662

no. of shares in Venture Associates, n3 = (200,000*24%)/$22 = (0.24*200,000)/4 = 12,000

new value of portfolio = N = (33*n1) + (68*n2)+(9*n3) = (33*6090.9090) + (68*233.7662)+(9*12,000) = $324896.103986 or $324896.10 or $324896

b)

old value of portfolio , P = 200,000

return = (N-P)/P = (324896.103986 - 200,000)/200,000 = 0.62448 OR 62.448% or 62.45%

c)

new portfolio weight of GoldFinger = (n1*33)/N = 6090.9090*33/324896.103986 = 0.61865 or 61.865% or 61.87%

( after rounding off)

new portfolio weight of Moosehead = (n2*68)/N = 233.7662*68/324896.103986 = 0.04892or 4.892% or 4.89%

( after rounding off)

new portfolio weight of Venture associates = (n3*9)/N = 12000*9/324896.103986 = 0.33241 or 33.241% or 33.24%

( after rounding off)