Consider a portfolio of 300 shares of firm A worth $10/share and 50 shares of firm B worth $40/share. You expect a return of 8% for stock A and a return of 13% for stock B.
(a) What is the total value of the portfolio, what are the portfolio weights and what is the expected return?
(b) Suppose firm A’s share price goes up to $12 and firm B’s share price falls to $36.
What is the new value of the portfolio?
What return did it earn? After the price change, what are the new portfolio weights?