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

Question

Business

Everett Villanueva

12 July, 10:50

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

+2

Answers (1)

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Mike Chung · Answer 1

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%