Question

The price of Microsoft is $30 per share and that of Apple is $58 per share. The price of Microsoft increases to $39 per share after one year and to $42 after two years. Also, shares of Apple increase to $66 after one year and to $71 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return over year 1 and year 2? Assume no dividends are paid.
A) 19.32%, 7.62%
B) 28.01%, 8.38%
C) 23.18%, 11.43%
D) 22.22%, 13.71%

Answer 1

Answer: See explanation

Explanation:

The total portoflio value at the time of purchase will be:

= (100 × $30) + (100 × $58)

= $3000 + $5800

= $8800

Total Portoflio Value after 1 Year will be:

= (100 × $39) + (100 × $66)

= $3900 + $6600

= $10500

Total Portoflio Value after Year 2 will be:

= (100 × $42) + (100 × $71)

= $4200 + $7100

= $11300

Portfolio Return (Year 1) will now be:

= (10500 - 8800)/8800 × 100

= 1700/8800 × 100

= 19.32%

Portfolio Return (Year 2) will be:

= (11300 - 10500)/10500 × 100

= 800/10500 × 100

= 7.62%