Question

In: Finance

You are considering how to invest part of your retirement savings.You have decided to put $...

You are considering how to invest part of your retirement savings.You have decided to put $ 100 comma 000 into three​ stocks: 53 % of the money in GoldFinger​ (currently $ 20​/share), 18 % of the money in Moosehead​ (currently $ 70​/share), and the remainder in Venture Associates​ (currently $ 10​/share). Suppose GoldFinger stock goes up to $ 43​/share, Moosehead stock drops to $ 68​/share, and Venture Associates stock drops to $ 9 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?

Solutions

Expert Solution

(a) Amount invested in GoldFinger = 53% of 100000 = $53000
Number of shares of GoldFinger purchased = 53000/20 = 2650

Amount invested in Moosehead = 18% of 100000 = $18000
Number of shares of Moosehead purchased = 18000/70 = 257.14

Amount invested in Venture Associates = 100000 - 53000 -18000 = $29000
Number of shares of Venture Associates purchased = 29000/10 = 2900

Value of GoldFinger now = 2650*43 = $113950

Value of Moosehead now = 257.14*68 = $17485.52

Value of Venture Associates now = 2900*9 = $26100

Value of the new portfolio = 113950 + 17485.52 + 26100 = $157535.52

(b) Initial Value of the portfolio = $100000

Value of the portfolio now = $157535.52

Returns = 157535.52/100000 - 1 = 0.5754 or 57.54%

(c) Value of Portfolio now = $157535.52

Weight of GoldFinger = 113950/157535.52 = 0.7233 or 72.33%

Weight of Moosehead = 17485.52/157535.52 = 0.1110 or 11.10%

Weight of Venture Associates = 26100/157535.52 = 0.1657 or 16.57%


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