Question

What proportion of the portfolio is invested in stock a?

Answer 1

To determine the proportion of the portfolio invested in Stock A, divide the value of the investment in Stock A
`(\(V_{\text{Stock A}}\))`by the total portfolio value
`(\(V_{\text{Total}}\)).`Therefore, the proportion
`\(P_{\text{Stock A}}\)` can be expressed as:

`\[P_{\text{Stock A}} = \frac{V_{\text{Stock A}}}{V_{\text{Total}}}\].`

Step-by-step explanation:

The proportion of the portfolio invested in Stock A is a crucial metric for assessing the portfolio's asset allocation. The formula
`\(P_{\text{Stock A}} = \frac{V_{\text{Stock A}}}{V_{\text{Total}}}\)`calculates this proportion, where
`\(V_{\text{Stock A}}\)` represents the value of the investment in Stock A, and
`\(V_{\text{Total}}\)`is the total value of the portfolio.

For a more concrete example, if the portfolio consists of $50,000 in Stock A and $100,000 in total investments, the proportion invested in Stock A would be
`\(P_{\text{Stock A}} = (50,000)/(100,000) = 0.5\)`or 50%. This implies that half of the portfolio's value is allocated to Stock A.

Understanding the proportion invested in each asset helps investors gauge the risk and return characteristics of their portfolios. It allows for strategic decision-making regarding diversification and risk management, ensuring that the investment mix aligns with the investor's financial goals and risk tolerance.