You are considering how to invest part of your retirement savings.You have decid

Question

You are considering how to invest part of your retirement savings.You have decided to put $400,000 into three stocks: 51% of the money in GoldFinger (currently $20/share), 9% of the money in Moosehead (currently S86/share), and the remainder in Venture Associates (currently $3/share). Suppose GoldFinger stock goes up to $41/share, Moosehead stock drops to $68/share, and Venture Associates stock rises to $5 per share. a. What is the new value of the portfolio? b. What return did the portfolio earn? c. If you don't buy or sell any shares after the price change, what are your new portfolio weights?

Explanation / Answer

Answer)

Answer a)

New portfolio value = 418200+28465.12 +26666.67 = 713,331.78

Answer b)

Return of porfolio = (713331.78 - 400000) / 400000 = 78.33%

Answer c) New portfolio weights

Weight of Goldfinger = 418200 / (418200+ 28465.12+266,666.67) = 58.63%

Weight of Moosehead = 28465.12 / (418200+ 28465.12+266,666.67) = 3.99%

Weight of Venture Associate = 266,666.67 / (418200+ 28465.12+266,666.67) = 37.38%

Stock Name Weights Amount Invested Intial Share Price Final Share price Return New value of portfolio New Weights Goldfinger 51% 51%*400000=204000 20 41 =(41-20) / 20 =105% 204000*(1+105%)=418200 Moosehead 9% 9%*400000=36000 86 68 = (68-86) / 86 = -21% 36000*(1+(-21%))=28,465.12 Venture Associate 40% 40%*400000=160000 3 5 (5-3)/3 = 67% 160000*(1+67%)=266666.67

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