Question

Your portfolio consists of 125 shares of CSH and 60 shares of​ EJH, which you just bought at $ 18 and $ 28 per​ share, respectively. a. What fraction of your portfolio is invested in​ CSH? In​ EJH? b. If CSH increases to $ 22 and EJH decreases to $ 25​, what is the return on your​ portfolio?

Answer 1

a. The fraction of portfolio invested in CSH is computed as shown below:

= (Number of shares of CSH x Price per share of CSH) / (Number of shares of CSH x Price per share of CSH + Number of shares of EJH x Price per share of EJH)

= (125 x $ 18) / (125 x $ 18 + 60 x $ 28)

= $ 2,250 / $ 3,930

= 0.5725 Approximately

The fraction of portfolio invested in EJH is computed as shown below:

= (Number of shares of EJH x Price per share of EJH) / (Number of shares of CSH x Price per share of CSH + Number of shares of EJH x Price per share of EJH)

= (60 x $ 28) / (125 x $ 18 + 60 x $ 28)

= $ 1,680 / $ 3,930

= 0.4275 Approximately

b. The return is computed as shown below:

= (Number of shares of CSH x New Price per share of CSH + Number of shares of EJH x New Price per share of EJH - Number of shares of CSH x Purchase Price per share of CSH - Number of shares of EJH x Purchase Price per share of EJH) / (Number of shares of CSH x Purchase Price per share of CSH + Number of shares of EJH x Purchase Price per share of EJH)

= (125 x $ 22 + 60 x $ 25 - 125 x $ 18 - 60 x $ 28) / (125 x $ 18 + 60 x $ 28)

= $ 320 / $ 3,930

= 8.14% Approximately

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