Question

You are considering how to invest part of your retirement savings.You have decided to put $ 400 comma 000 into three​ stocks: 56 % of the money in GoldFinger​ (currently $ 16​/share), 18 % of the money in Moosehead​ (currently $ 77​/share), and the remainder in Venture Associates​ (currently $ 4​/share). Suppose GoldFinger stock goes up to $ 41​/share, Moosehead stock drops to $ 69​/share, and Venture Associates stock rises to $ 17 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

Answer:

Explanation:

Money invested in Gold finger = 56% of $400,000 = $224,000

No. of stocks of Gold finger purchased = $224,000 /$16 = 14,000 shares.

Money invested in Moose head = 18% of $400,000 = $72,000.

No. of stocks of Moose head = $72,000/$77 = 935 shares

Money invested in Venture Associates = 400,000-(224,000-72,000) = $104,000

No. of stocks of Venture Associates = $104,000/$4 = 26000 shares

New value of portfolio = (14,000 shares × $41) + (935 shares×$69) +(26000 shares×$17)

= $574,000 + $64,515 + $ 442,000

= $1,080,515

1. Thus portfolio value after all changes in stock prices are accounted for = $1,080,515

2. % change in portfolio = (1080515-400000)/400000 = 170%

3. Weight of each stock in the portfolio:

Weight of Gold finger = (574,000)/1080515 = 53.12%

Weight of Moose head = (64,515)/1080515 = 5.97%

Weight of Venture Associates = (442,000)/1080515 = 40.91%