Portfolio returns composition
1. (Related to Checkpoint? 8.1)???(Portfolio expected rate
of? return)??Penny Francis inherited a? $100,000 portfolio of investments from
her grandparents when she turned 21 years of age. The portfolio is comprised of
the following three? investments:??
Expected Return and Value
Treasury Bills 4.8% 50,000
Ford? (F) 6.4% 40,000
Harley Davidson? (HOG) 12.2% 10,000
a.??Based on the current portfolio composition and the
expected rates of? return, what is the expected rate of return for? Penny’s
portfolio?
b.??If Penny wants to increase her expected portfolio rate
of? return, she could increase the allocated weight of the portfolio she has
invested in stock? (Ford and Harley? Davidson) and decrease her holdings of
Treasury bills. If Penny moves all her money out of Treasury bills and splits
it evenly between the two? stocks, what will be her expected rate of? return?
c.??If Penny does move money out of Treasury bills and into
the two stocks she will reap a higher expected portfolio? return, so why would
anyone want to hold Treasury bills in their? portfolio?
