Question 1(a) James Scott and his wife Lisa retired from their jobs in 2013 and
ID: 2649000 • Letter: Q
Question
Question 1(a) James Scott and his wife Lisa retired from their jobs in 2013 and have managed their own 401k money by rolling out to Fidelity Investments. Their investment holdings include PSE&G.; Facebook, Oracle, and Fidelity Money Market Account. The weights of PSE&G; (48%), Facebook (12%), Oracle (17%), and Money Market Account (23%). The annual expected returns are 4.2%, 18.5%, 7.8%, and 1.2%, respectively. What is the expected annualized return over the next 12 months? As the U.S. economy changes and uncertainty can develop over the next 12 months they re-allocate the weights of portfolio composite change to PSE&G; (45%). Facebook (10%), Oracle (15%). and Money Market Account (30%). The annualized expected returns also change for PSE&G;, Facebook, Oracle, and Money Market to be 5.4%, 16.3%, 8.6%, and 1.4%, respectively. What is the expected annualized return over the next 12 months? YOU MUST SHOW YOUR CALCULATIONS:Explanation / Answer
Expected Annualized Return over 12 month = Weight of PSE&G*Expected Return of PSE&G + Weight of Facebook*Expected Return of Facebook + Weight of Oracle*Expected Return of Oracle + Weight of Money Market Account *Expected Return of Money Market Account
Expected Annualized Return over 12 month = 48%*4.2 + 12%*18.5 + 17%*7.8 + 23%*1.2
Expected Annualized Return over 12 month = 5.838%
Expected Annualized Return over 12 month = 5.84%
As the US economy changes and After Re-allocation
Expected Annualized Return over 12 month = Weight of PSE&G*Expected Return of PSE&G + Weight of Facebook*Expected Return of Facebook + Weight of Oracle*Expected Return of Oracle + Weight of Money Market Account *Expected Return of Money Market Account
Expected Annualized Return over 12 month = 45%*5.4 + 10%*16.3 + 15%*8.6 + 30%*1.4
Expected Annualized Return over 12 month = 5.77%
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