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Aleksandr [31]
3 years ago
5

You own three​ stocks: 600 shares of Apple​ Computer, 10 comma 000 shares of Cisco​ Systems, and 5 comma 000 shares of​ Colgate-

Palmolive. The current share prices and expected returns of​ Apple, Cisco, and​ Colgate-Palmolive are,​ respectively, $ 500​, $ 20​, $ 100 and 12 %​, 10 %​, 8 %.
a. What are the portfolio weights of the three stocks in your portfolio?
b. What is the expected return of your portfolio?
c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5, and Colgate-Palmolive falls by $13. What are the new portfolio weights?
d. Assuming the stocks
Business
1 answer:
Nina [5.8K]3 years ago
7 0

Answer:

Explanation:

a.

Finding Weights

Apple => 600 * 500     =  300,000

Cisco  => 10,000 * 20  =  200,000

CP      => 5,000 * 100  =  500,000

Total                              =  1,000,000

Each Weight

Apple => 300,000 / 1,000,000     =  30%

Cisco  => 200,000 / 1,000,000     =  20%

CP      => 500,000 / 1,000,000     =  50%

b.

Using

(Rate*Weight)

(0.3 * .12) + (0.2 * .10) + (0.5 * .08) = 0.096 = 9.6%

c.

New Weights

Apple => 600 * 525     =  315,000

Cisco  => 10,000 * 25  =  250,000

CP      => 5,000 * 87     =  435,000

Total                              =  1,000,000

Each Weight

Apple => 315,000 / 1,000,000     =  31.5%

Cisco  => 250,000 / 1,000,000     =  25%

CP      => 435,000 / 1,000,000     =  43.5%

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Answer:

A. $41,120.

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Year    Description          Cash flow           Present [email protected]%

0       Equipment cost      ($30,000)                    ($30,000)

1-4      Additional CF           $24,000                    $69,929.10

4        Residual value            $2,000                       $1,184.16

Present value total                                                 $41,113.26

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Explanation:

The stocks that are in cedar valley corporation has a price that exceedes its present value from this statement the first given option doesn't justify as the stocks rates are not undervalued.

Now, in the second option its again given that the stock will be overvalued which is true but it should be added to the portfolio is not correct. so, this option is not considered.

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And the last one states that its undervalued which restricts the option at this point only.

So, third option is correct.

5 0
3 years ago
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