Question

You own three​ stocks: 600 shares of Apple​ Computer, 10 comma 000 shares of Cisco​ Systems, and 5 comma 000 shares of​ Colgate-Palmolive. The current share prices and expected returns of​ Apple, Cisco, and​ Colgate-Palmolive are,​ respectively, $ 500​, $ 20​, $ 100 and 12 %​, 10 %​, 8 %.

a. What are the portfolio weights of the three stocks in your portfolio?
b. What is the expected return of your portfolio?
c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5, and Colgate-Palmolive falls by $13. What are the new portfolio weights?
d. Assuming the stocks

Answer 1

Step-by-step explanation:

a.

Finding Weights

Apple => 600 * 500 = 300,000

Cisco => 10,000 * 20 = 200,000

CP => 5,000 * 100 = 500,000

Total = 1,000,000

Each Weight

Apple => 300,000 / 1,000,000 = 30%

Cisco => 200,000 / 1,000,000 = 20%

CP => 500,000 / 1,000,000 = 50%

b.

Using

(Rate*Weight)

(0.3 * .12) + (0.2 * .10) + (0.5 * .08) = 0.096 = 9.6%

c.

New Weights

Apple => 600 * 525 = 315,000

Cisco => 10,000 * 25 = 250,000

CP => 5,000 * 87 = 435,000

Total = 1,000,000

Each Weight

Apple => 315,000 / 1,000,000 = 31.5%

Cisco => 250,000 / 1,000,000 = 25%

CP => 435,000 / 1,000,000 = 43.5%