Question

An investor owns a three-stock portfolio today with the market value and expected annual return for each of the stocks as follows

blue - 12,000 8%

black 22,000 10%

Serina 16000 12%

What is the expected portfolio value two years from now

Answer 1

Question:

An investor owns a three-stock portfolio today with the market value and expected annual return for each of the stocks as follows

blue - 12,000 8%

black 22,000 10%

Serina 16000 12%

What is the expected portfolio value two years from now?

Solution:

Given:

Market Value of 3 Stocks:

1. Blue = 12,000

2. Black = 22,000

3. Serina = 16,000

Expected Annual Return of 3 Stocks:

1. Blue = 8 %

2. Black = 10 %

3. Serina = 12 %

To Calculate:

Expected Value of Portfolio 2 years from now:

Formulas:

1. Expected Value of Portfolio = ∑ Future Value of all Stocks

2. Future Value of Stock = Market Value × (1 + r) ^t

Where:

r = Expected Annual Return and t = Time Period

Here:

Time Period = 2 Years

Tabulation of Calculation of Expected Value of Portfolio:

S. No	Stocks	Market Value	Expected Annual Return	Future Value of Stock = Market Value × (1 + Expected Annual Return) ^2
1.	Blue	12,000	8 %	12,000 × (1+0.08) ^2 = 13,996.80
2.	Black	22,000	10 %	22,000 × (1+0.10) ^2 = 26,620.00
3.	Serina	16,000	12 %	16,000 × (1+0.12) ^2 = 20,070.40
Total				∑ Future Value of all Stocks    = 60,687.20
Expected Value of Portfolio Two Years from Now is 60,687.20 ≈ 60,688

Ans: The Expected Value of Portfolio Two Years from Now is 60,688