Suppose you invest in 150 shares of Harley-Davidson at $40 per share and 250 shares of...

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Question

Answer 1

Answer #1

Value of Harley-Davidson = Shares Outstanding * Price of Harley-Davidson = 150 * $40 = $6,000

Value of Yahoo = Shares Outstanding * Price of Yahoo = 250 * $25 = $6,250

Total Value of Retirement Portfolio = Value of Harley-Davidson + Value of Yahoo

= $6,000 + $6,250 = $12,250

Return(Harley-Davidson) = [P1 - P0] / P0 = [$50 - $40] / $40 = $10 / $40 = 0.25, or 25%

Return(Yahoo) = [P1 - P0] / P0 = [$20 - $25] / $25 = -$5 / $25 = -0.2, or -20%

Expected Return = [Weight(Harley-Davidson) * Return(Harley-Davidson)] + [Weight(Yahoo) * Return(Yahoo)]

= [(6,000/12,250) * 25%] + [(6,250/12,250) * -20%]

= 12.24% + (-10.20%) = 2.04%

So, Option "B" is correct.

Answer 2

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