Question

Assume you bought 400 shares of wal mart stores (WMT at $68.59) and 80 shares of...

Assume you bought 400 shares of wal mart stores (WMT at $68.59) and 80 shares of Apple inc. (aapl at $570.52) at today’s price . What is your expected portfolio return if you believe WMT will generate annual returns of 10% and aapl will generate annual returns of 21% ?

1- what are your portofolio weights ?
2- what is the expected return on this portofolio ?


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Answer #1

Answer to Requirement 1.

Value of Wal Mart Store’s (WMT) stock = 400 Shares * $68.59
Value of Wal Mart Store’s (WMT) stock = $27,436.00

Value of Apple Inc’s (AAPL) stock = 80 Shares * $570.52
Value of Apple Inc’s (AAPL) stock = $45,641.60

Value of Portfolio = $27,436.00 + $45,641.60
Value of Portfolio = $73,077.60

Weight of Wal Mart Store’s (WMT) Stock = $27,436 / $73,077.60
Weight of Wal Mart Store’s (WMT) Stock = 0.3754

Weight of Apple Inc’s (AAPL) Stock = $45,641.60 / $73,077.60
Weight of Apple Inc’s (AAPL) Stock = 0.6246

Answer to Requirement 2.

Portfolio Return = (Weight of WMT stock * Return on WMT Stock) + (Weight of AAPL stock * Return on AAPL Stock)
Portfolio Return = (0.3754 * 0.10) + (0.6246 * 0.21)
Portfolio Return = 16.87%

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