P8-3 Portfolio Return At the beginning of the month, you owned $12,000 of Ford Motor, $18,000 of Netflix, and $20,000 of Wayfair. The monthly returns for Ford Motor, Netflix, and Wayfair were 1.50 percent, 1.0 percent, and − 1.50 percent. What is your monthly portfolio return? What is your effective annual portfolio return? To solve, first you must calculate each stock’s weight of the total portfolio. Times that weight for the stock’s contribution to the portfolio return, then sum all three stocks
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
P8-3 Portfolio Return At the beginning of the month, you owned $12,000 of Ford
Motor, $18,000 of Netflix, and $20,000 of Wayfair. The monthly returns for Ford Motor,
Netflix, and Wayfair were 1.50 percent, 1.0 percent, and − 1.50 percent. What is your
monthly portfolio return? What is your effective annual portfolio return?
To solve, first you must calculate each stock’s weight of the total portfolio.
Times that weight for the stock’s contribution to the portfolio return, then
sum all three stocks
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