Question

You are considering how to invest part of your retirement savings. You have decided to put $ 200,000 into three stocks: 58 % of the money in GoldFinger (currently $ 22/share), 24 % of the money in Moosehead (currently $97/share), and the remainder in Venture Associates (currently $ 3/share). Suppose GoldFinger stock goes up to $ 38/share, Moosehead stock drops to $ 50/share, and Venture Associates stock rises to $ 10 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?

Answer 1

a

Shares in goldfinger

= portfolio value*weight/share price = 200000*0.58/22=5272.72

Shares in Moosehead

= portfolio value*weight/share price = 200000*0.24/97=494.845

Shares in goldfinger

= portfolio value*weight/share price = 200000*(1-0.58-0.24)/3=12000

Total New Portfolio value = price of Goldfinger*Shares of Goldfinger + price of Moosehead*Shares of Moosehead + price of Venture associate*Shares of Venture associate

=38*5272.72+50*494.845+10*12000

=345105.61

b

Return = (new portfolio value/old portfolio value-1)*100

=(345105.61/200000-1)*100=72.55%

b

Total New Portfolio value = price of Goldfinger*Shares of Goldfinger + price of Moosehead*Shares of Moosehead + price of Venture associate*Shares of Venture associate

=38*5272.72+50*494.845+10*12000

=345105.61

Weight of Goldfinger = price of Goldfinger*Shares of Goldfinger/Total New Portfolio Value

= 200363.36/345105.61

=0.5806

Weight of Moosehead = price of Moosehead*Shares of Moosehead/Total New Portfolio Value

= 24742.25/345105.61

=0.0717

c