In: Finance
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?
(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%