Question

The price of Microsoft is $30 per share and that of Apple is $55 per share. The price of Microsoft increases to $36 per share after one year and to $39 after two years. Also, shares of Apple increase to $67 after one year and to $72 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid. O A. 24.35%, 13.98% O B. 30.71%, 8.54% O C. 25.41%, 11.65% OD. 21.18%, 7.77%

Answer 1

Solution

Answer-21.18%,7.77%

Initial price of Microsoft share=$30

Initial price of Apple share=$55

Total Initial cost of 100 shares of microsoft and 100 shares of Apple=100*price of each apple share+100*price of each microsoft share=100*55+100*30=$8500

Now

price of Microsoft share in one year=$36

price of Apple share in one year=$67

Total cost of 100 shares of microsoft and 100 shares of Apple in 1 year=100*price of each apple share+100*price of each microsoft share=100*67+100*36=$10300

Return in year 1=(Total cost of Apple and microsoft shares in 1 year/Total Initial cost of Apple and microsoft)-1

Return in year 1=10300/8500-1=0.211765=21.18%

price of Microsoft share in two year=$39

price of Apple share in two year=$72

Total cost of 100 shares of microsoft and 100 shares of Apple in 2 year=100*price of each apple share in 2 year+100*price of each microsoft share in 2 year=100*72+100*39=$11100

Return in year 2=(Total cost of Apple and microsoft shares in Two year/Total cost of Apple and microsoft shares in 1 year)-1

=(11100/10300)-1=0.07767

Return in year 2=7.77%

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