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6.You bought 100 shares of AOL at the beginning of the year for $200
each. You also bought 100 shares of AT&T at the same time for
$80 each. At the end of the year, you sold all of your AOL stock
for $130 per share. You also sold all of your AT&T stock for
$139 per share right after receiving a $1 dividend for each share.
What was the return on your portfolio of AOL and AT&T? (5)
First, compute your return on each stock:
AOL: (130-200)/200=-.35
AT&T: (1+139-80)/80=+.75
Now figure out what your portfolio weights are by determining what proportion of your money is invested in each stock. You paid (200*100 =20000 for your AOL stock and (80*100=8000 for your AT&T stock )
AOL: (200*100)/(200*100 + 80*100) = 0.714
AT&T: (80*100)/(200*100 + 80*100)=0.286
The return on a portfolio is just the weighted average return on the stocks in that portfolio:
Rp=(0.714)(-0.35)+(0.286)(0.75)=-0.0354