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7 July, 09:20

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

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  1. 7 July, 09:27
    0
    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%
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