In: Finance
You are considering how to invest part of your retirement savings.You have decided to put $600,000 into three stocks: 54% of the money in GoldFinger (currently $25/share), 8% of the money in Moosehead (currently $85/share), and the remainder in Venture Associates (currently $3/share). Suppose GoldFinger stock goes up to $31/share, Moosehead stock drops to $57/share, and Venture Associates stock dropsdrops to $2 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? please help, Thank You
Total capital to invest = $600,000 (given)
Stock 1 --> Goldfinger
Portion of capital = 54% (given)
Capital in amount = $600,000 * 54% = $324,000
Share price = $25 (given)
Number of shares bought = 324,000 / 25 = 12960 shares
Stock 2 --> Moosehead
Portion of capital = 8% (given)
Capital in amount = $600,000 * 8% = $48,000
Share price = $85 (given)
Number of shares bought = 48,000 / 85 = 565 shares (rounded
off)
Stock 3 --> Venture Associates
Portion of capital = 38% (given)
Capital in amount = $600,000 * 38% = $228,000
Share price = $3 (given)
Number of shares bought = 228,000 / 3 = 76000 shares
AFTER PRICE CHANGE
Stock 1 --> Goldfinger
New Share price = $31 (given)
Number of shares bought = 324,000 / 25 = 12960 shares
Total new value = 12960 * 31 = $401,760
Stock 2 --> Moosehead
New Share price = $57 (given)
Number of shares bought = 48,000 / 85 = 565 shares (rounded
off)
Total new value = 565 * 57 = $32,205
Stock 3 --> Venture Associates
Share price = $2 (given)
Number of shares bought = 228,000 / 3 = 76000 shares
Total new value = 76000 * 2 = $152,000
Part a
Therefore, the new value of the portfolio is the new value of
stock 1 + new value of stock 2 + new value of stock 3
the new value of the portfolio = $401,760 + $32,205 + $152,000 =
$585,965
Part b
The portfolio earned a negative return as the value of the
portfolio reduced.
The return that the portfolio earned is calculated by --> [(old
value - new value) / old value] * 100
The return that the portfolio earned is --> [(600000 - 585965) /
600000 * 100] = -2.34%
Part c
New portfolio weights of each stock are --> [(stock value / total portfolio value) * 100]
Total portfolio value (new) = $585,965 (calculated above)
For Stock 1 --> Goldfinger
Total new value = $401,760 (calculated above)
Weight in portfolio = [(401760/585965) * 100] =
68.56%
Stock 2 --> Moosehead
Total new value = 565 * 57 = $32,205 (calculated above)
Weight in portfolio = [(32205/585965) * 100] =
5.50%
Stock 3 --> Venture Associates
Total new value = 76000 * 2 = $152,000 (calculated above)
Weight in portfolio = [(152000/585965) * 100] =
25.94%