The price of BHP is $30 per share and that of RIO is $50 per share. The price of BHP increases to $35 per share after one year and to $40 after two years. Also, shares of RIO increase to $60 after one year and to $70 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

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Quizplus · Accepted Answer

The portfolio return for year 1 is calculated as the increase in value of the portfolio divided by the initial value. For BHP, the increase is (35-30)*100 = $500, and for RIO, it is (60-50)*100 = $1000. The initial portfolio value is (30*100 + 50*100) = $8000. So, the return for year 1 is ($1500/$8000)*100 = 18.75%. For year 2, the increase for BHP is (40-35)*100 = $500, and for RIO, it is (70-60)*100 = $1000. The portfolio value at the end of year 1 is $9500. So, the return for year 2 is ($1500/$9500)*100 = 15.79%.

The Price of BHP Is $30 Per Share and That