Question

You are considering how to invest part of your retirement savings.You have decided to put $ 300 comma 000 into three​ stocks: 55 % of the money in GoldFinger​ (currently $ 23​/share), 22 % of the money in Moosehead​ (currently $ 97​/share), and the remainder in Venture Associates​ (currently $ 5​/share). Suppose GoldFinger stock goes up to $ 32​/share, Moosehead stock drops to $ 66​/share, and Venture Associates stock drops to $ 3 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

a. The new value of the​ portfolio:$315,848

b. Portfolio return: 5.28%

c. New portfolio weights:

+ Gold Finger: 73%

+ Moosehead: 14%

+ Venture Associates: 13%

Step-by-step explanation:

- Current portfolio as followed:

+ Gold Finger: Investment amount at 300,000 x 55% = $165,000, Number of shares: 165,000/23 = 7,174 shares.

+ Moosehead: Investment amount at 300,000 x 22% = $66,000, Number of shares: 66,000/97 = 680 shares.

+ Venture Associates: Investment amount at 300,000 - 66,000 - 165,000 = $69,000, Number of shares = 69,000/5 = 13,800 shares.

- After share price changes:

a. New value of the portfolio = Gold Finger value + Moosehead value + Venture Associates value = 7,174 x 32 + 680 x 66 + 3 x 13,800 = $315,848.

b. Return on the portfolio = ( Value of the portfolio after price changes - Value of the portfolio before price changes) - 1 = ( 315,848 / 300,000) - 1 = 5.28%.

c. New portfolio weights:

+ Gold Finger: 7,174 x 32 / 315,848 = 73%

+ Moosehead: 680 x 66 / 315,848 = 14%

+ Venture Associates: 13,800 x 3 / 315,848 = 13%