You are looking over your brother's portfolio.In his portfolio,he is holding one long position and one short position.Jimmy,your brother,bought 1,600 shares of Sunny Inc.each for $55.He sold 1,000 shares of Rainy Ltd.for $50 a share.Calculate the portfolio weight on the Rainy Ltd.position.
A) -1.32
B) -0.76
C) -0.50
D) 0.24
E) 0.30

Question

Quizplus · Accepted Answer

The short position generates a positive cash flow, so your equity investment in the portfolio is the cost of buying Sunny less the proceeds from selling Rainy. Investment = Cost of buying Sunny - Proceeds from selling Rainy Investment = $88,000 - $50,000 Investment = $38,000 w_i = 11ea7fdb_fc0a_4cb6_a768_e9f675c9ef04_TB2902_11 The portfolio weight on the Sunny position is = 11ea7fdb_fc0a_4cb7_a768_23bcfe75668f_TB2902_11 = 2.32 The portfolio weight on the Rainy position is = 11ea7fdb_fc0a_4cb8_a768_d5e7ebd8ccf7_TB2902_11 = -1.32 The weight on Rainy is negative because it is a short position. Just to verify the weights: 2.32 + (-1.32) = 1.

You Are Looking Over Your Brother's Portfolio