Following the Warren Buffett strategy of “Buy what you understand”, you decide t
ID: 2787520 • Letter: F
Question
Following the Warren Buffett strategy of “Buy what you understand”, you decide to create a two stock portfolio consisting of Facebook (FB) and Twitter (TWTR) stock. With your graduation present, you make the following investments:
What is the expected return of the portfolio?
Answer Format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
STOCK: # of shares: Price Per share: Expected Return: Standard Deviation Facebook 60.00 $50.00 10.00% 20.00% Twitter 50.00 $40.00 15.00% 40.00%Explanation / Answer
Step-1:Weight of Individual stock Facebook = Value of Facebook Stock/Total Value of Investment = $ 3,000.00 / $ 5,000.00 = 60% Twitter = Value of Twitter Stock/Total Value of Investment = $ 2,000.00 / $ 5,000.00 = 40% Working: Value of facebook Investment = 60 x $ 50.00 = $ 3,000.00 Value of Twitter Investment = 50 x $ 40.00 = $ 2,000.00 Total Value of Portfolio = $ 5,000.00 Step-2:Expected Return of Portfolio = (weight of facebook*expected return of facebook)+(Weight of twitter*Expected return of Twitter) = (60%*10%)+(40%*15%) = 12.00% Expected return of portfolio is 12.00%