Question

Suppose you invest in 100 shares of Harley- Davidson (HOG) at $40 per share and 230 shares of Yahoo(YHOO) at $25 per share. If the price of Harley-Davidson increases to $50 and the price of Yahoo decreases to $20 per share, what is the return on your portfolio A) -10.50%, B) -5.20%, C) 12.25%, D) -1.54%

Answer 1

option (D) - 1.54%

Step-by-step explanation:

Number of share of Harley- Davidson (HOG) = 100

Number of share of Yahoo(YHOO) = 230

Purchase price of share of Harley- Davidson (HOG) = $40 per share

Purchase price of of share of Yahoo(YHOO) = $25 per share

Final price of the share of Harley- Davidson (HOG) = $50

Increase in price of the share of Harley- Davidson (HOG) = $50 - $40 = $10

Final price of the share of Yahoo(YHOO) = $20

Increase in price of the share of Yahoo(YHOO) = $20 - $25 = - $5

here, negative sign means the loss

Now,

Total amount invested = 100 × $40 + 230 × $25

= 4,000 + 5,750

= $9,750

also,

Total net gain from shares = $10 × 100 - $5 × 230

= 1,000 - 1,150

= -150

return on your portfolio =
`\frac{\textup{Net gain }}{\textup{Amount invested}}*100\%`

=
`\frac{\textup{-150}}{\textup{9,750}}*100\%`

= - 1.538% ≈ - 1.54%

option (D) - 1.54%