Your portfolio consists of 100 shares of CSH and 50 shares of EJH, which you just bought at $20 and $30 per share, respectively. What fraction of your portfolio is invested in CSH? In EJH?If CSH increases to $23 and EJH decreases to $29, what is the return on your portfolio?

The fraction in CSH is 0.5714.

The fraction of EJH is 0.4286.

The return on the portfolio is 7.14%.

Investment made in CSH= $ 100 × $20 = $2,000

Investment in EJH = $50 × 30  = $1,500

So,  

Total Investment is

= $2,000 + $1,500

= $3,500

Now  

Fraction of the portfolio in CSH is

= $2,000 ÷ $3,500

= 0.5714

Fraction of the portfolio in EJH is

= $1,500 ÷ $3,500

= 0.4286

Now

If CSH increases to $23 and EJH decreases to $29.

So,

The new value of the portfolio is  

= $23 × 100 + $29 × 50

= $2,300 + $1,450

= $3,750

Now

Return in portfolio is

= (New value of portfolio ÷ Total Investment) - 1

= ($3,750 ÷ $3,500) - 1

= 1.0714 - 1

=.0714

=7.14%

Therefore we can conclude that

The fraction in CSH is 0.5714.

The fraction of EJH is 0.4286.

The return on the portfolio is 7.14%.

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7.14%

Explanation:

Investment in CSH= $ 100*20 = $ 2000

Investment in EJH=$ 50*30 =$ 1500

Total Investment=$ 2000+$ 1500=$3500

fraction of your portfolio in CSH= $ 2000/$3500 = 0.5714

fraction of your portfolio in EJH= $ 1500/$3500 = 0.4286

If CSH increases to $23 and EJH decreases to $29,

new value of portfolio

= $23*100+$29*50

=$2300+$1450

= $3750

return in portfolio=(new value of portfolio/Total Investment)-1

return in portfolio=($3750/$3500)-1

return in portfolio=1.0714 - 1

return in portfolio=.0714=7.14%

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