Question

Q1: A portfolio has three stocks long dash— 240 shares of Yahoo? (YHOO), 130 shares of General Motors? (GM), and 70 shares of Standard and? Poor's Index Fund? (SPY). If the price of YHOO is? $30, the price of GM is? $30, and the price of SPY is? $130, calculate the portfolio weight of YHOO and GM

Q2: A stock market comprises 2500 shares of stock A and 2500 shares of stock B. The share prices for stocks A and B are $20 and $5?, respectively. What proportion of the market portfolio is comprised of each? stock?

Q3: UPS, a delivery services? company, has a beta of 1.6?, and? Wal-Mart has a beta of 0.6. The? risk-free rate of interest is 6% and the market risk premium is 88?%. What is the expected return on a portfolio with? 40% of its money in UPS and the balance in?Wal-Mart?

Answer 1

1)Total market value : [240*30 ] yahoo + [130*30] GM+[70*130]SPY

          = 7200+ 3900+9100

          = 20200

WEIGHT OF YAHOO =Market value of yahoo /total market value

               = 7200/20200

                  = .3564 or 35.64%

weight of GM= 3900/20200 = .1931 OR 19.31%

2)Total market value : [2500*20]A+ [2500*5]B

        = 50000+ 12500

         =62500

Weight of A = 50000/62500= .80 OR 80%

B = 12500/62500 = .20 OR 20%

3)Return of UPS = RF+[market premium *beta]

        = 6 +[88*1.6]

          = 6+140.8

           = 146.8%

Return of Wal mart : 6+ [88*.6]

                6+ 52.8

               58.8%

expected return on a portfolio :[146.8*.40]+[58.8*.60]

           = 58.72+ 35.28

             = 94%