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Lecture 3: Q1: Suppose Sarah starts her investment portfolio by allocating US$ 25,000 across three...

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Finance

Lecture 3: Q1: Suppose Sarah starts her investment portfolio by allocating US$ 25,000 across three assets, stocks A, B, and C, as follows: Stock A: 40% of allocation Stock B: 32% of the allocation

A: At the end of the first year, Stock A returns 15.5%, Stock B returns 11% and Stock C returns 6.3%. Assuming zero trading costs, what is the total return on her portfolio?

B: At the start of year 2, Sarah re-trades across three stocks, allocating the same US$ 25,000 across the same securities, as follows: Stock A allocation of 35.7% of her invested amount, Stock B allocation of 51.0%. At the end of year 2, individual assets returns are -8.0% for Stock A, 9.5% for Stock B, and 14.6% for stock

C. Assuming zero trading costs, what is the total return on her new portfolio for that year? If Sarah did not trade at the start of year 2, what would have been her return to the portfolio in year 2?

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