Final answer:
To create a value weighted portfolio, calculate the market cap for each stock, find the total market cap, calculate each stock's weight in the portfolio, and then allocate the $100,000 investment based on these weights. The market caps for Goldman Sachs, Jacobs and Jacobs, MAG, and PDJB are $20.3M, $37.44M, $1,090.74M, and $134.68M respectively.
Step-by-step explanation:
To construct a value weighted portfolio, first, calculate the market capitalization of each company. That is determined by multiplying the price per share by the number of shares outstanding. Next, calculate the portfolio weight for each stock by dividing each stock's market capitalization by the total market capitalization of all stocks in the portfolio. Finally, multiply these weights by the total investment to find out how much money should be invested in each stock.
Here are the steps and calculations:
- Calculate each stock's market capitalization (market cap).
- Sum all the market caps to find the total market cap of the portfolio.
- For each stock, divide its market cap by the total portfolio market cap to get the weight.
- Multiply each weight by the total investment amount ($100,000) to find out the investment value per stock.
Using the given data:
- Goldman Sachs Market Cap = $14 × 1.45 million = $20.3 million
- Jacobs and Jacobs Market Cap = $24 × 1.56 million = $37.44 million
- MAG Market Cap = $42 × 25.97 million = $1,090.74 million
- PDJB Market Cap = $13 × 10.36 million = $134.68 million
Total Market Cap = $20.3M + $37.44M + $1,090.74M + $134.68M = $1,283.16M
Then, calculate the portfolio weights:
- Goldman Sachs Weight = $20.3M / $1,283.16M
- Jacobs and Jacobs Weight = $37.44M / $1,283.16M
- MAG Weight = $1,090.74M / $1,283.16M
- PDJB Weight = $134.68M / $1,283.16M
Multiply these weights by the $100,000 investment to determine the investment per stock: