$\begin{array}{|c|c|c|}
\hline \text { Asset } & \begin{array}{c}
\text { Price at } \
\text { start of } \
\text { period (\$) }
\end{array} & \begin{array}{c}
\text { Price at } \
\text { end of } \
\text { period (\$) }
\end{array} \
\hline \text { A } & \$ 3.25 & \$ 4.25 \
\hline \text { B } & \$ 4.12 & \$ 3.85 \
\hline & & \
\hline
\end{array}$
-Given the prices for A and B at the start and end of the period,calculate the price-weighted return on a portfolio consisting of assets A and B.
A) $7.22 \%$
B) $7.85 \%$
C) $8.02 \%$
D) $8.65\%$

Question

Quizplus · Accepted Answer

Using equation 1.5,page 14,the continuously compounded return for share A is ln(4.25/3.25)= 0.268 or 26.8%,and for share B is ln(3.85/4.12)= -0.068 or -6.8%.The total cost (in terms of price)of the portfolio is 3.25 + 4.12 = $7.37,of which 3.25/7.37 = 44.1% is invested in asset A,and 55.9% is invested in asset B.Using equation 1.16,page 23,the price-weighted (continuously compounded)return on the portfolio is 0.441(26.8)+ 0.559(-6.8)= 8.02%.

-Given the Prices for a and B at the Start