At the beginning of the month, you owned $5,000 of General Dynamics, $7,000 of S

Question

At the beginning of the month, you owned $5,000 of General Dynamics, $7,000 of Starbucks, and $4,000 of Nike. The monthly returns for General Dynamics, Starbucks, and Nike were 7.90 percent, 1.74 percent, and 0.73 percent. What is your portfolio return? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

At the beginning of the month, you owned $5,000 of General Dynamics, $7,000 of Starbucks, and $4,000 of Nike. The monthly returns for General Dynamics, Starbucks, and Nike were 7.90 percent, 1.74 percent, and 0.73 percent. What is your portfolio return? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Monthly Portfolio Return = [ (Proportion of funds invested in General Dynamics) * (Monthly returns for General Dynamics) ] + [ (Proportion of funds invested in Starbucks) * (Monthly returns for Starbucks) ] + [ (Proportion of funds invested in Nike) * (Monthly returns for Nike) ]

Proportion of funds invested in General Dynamics = 5,000 / (5,000 + 7,000 + 4,000) = 5,000 / 16,000 = 0.3125

Proportion of funds invested in Starbucks = 7,000 / (5,000 + 7,000 + 4,000) = 7,000 / 16,000 = 0.4375

Proportion of funds invested in Nike = 4,000 / (5,000 + 7,000 + 4,000) = 4,000 / 16,000 = 0.25

Monthly Portfolio Return = [ 0.3125 * 7.90% ] + [ 0.4375 * (1.74%) ] + [ 0.25 * (0.73%) ]

= [ 0.3125 * 0.079 ] - [ 0.4375 * 0.0174 ] - [ 0.25 * 0.0073 ]

= 0.0246875 - 0.0076125 - 0.001825

= 1.525 %

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