Question

A year ago, you inherited 300,000 euros, which you invested in a total of three shares. 40% of the inheritance was invested in share A, which at that time cost 80 euros per share. Similarly, you invested 40% in stock B, which cost € 30 per share. The rest of the inheritance was invested in share C, which was priced at EUR 5 per share.

Today, exactly one year after you made your investment, the prices per share are as follows: share A 65 euros; share B EUR 40; share C EUR 20. The shares have not paid a dividend.

What is the weight of stock A in your portfolio today?

a. About 20%.

b. About 15%.

c. About 30%.

d. About 25%.

Answer 1

The weight of stock A is computed as shown below:

Number of shares of A is computed as follows:

= (Total Amount x 40%) / 80 euros

= (300,000 euros x 40%) / 80 euros

= 1,500 shares

Number of shares of B is computed as follows:

= (Total Amount x 40%) / 30 euros

= (300,000 euros x 40%) / 30 euros

= 4,000 shares

Number of shares of C is computed as follows:

= (Total Amount x 20%) / 5 euros

= (300,000 euros x 20%) / 5 euros

= 12,000 shares

The amount of total portfolio today is computed as follows:

= Number of shares of A x price per share of A + Number of shares of B x price per share of B + Number of shares of C x price per share of C

= 1,500 shares x 65 euros + 4,000 shares x 40 euros + 12,000 shares x 20 euros

= 497,500 euros

So, the weight of stock A is computed as follows:

= (Number of shares of A x price per share of A) / Total value of portfolio

= (1,500 shares x 65 euros) / 497,500 euros

= 97,500 euros / 497,500 euros

= 19.60% Approximately, which is about 20%

So, the correct answer is option a.

Feel free to ask in case of any query relating to this question