1. (Related to Checkpoint 8.1) (Portfolio expected rate of return) Penny Francis inherited a $100,000 portfolio of investments from her grandparents when she turned 21 years of age. The portfolio is comprised of the following three investments:
Expected Return and Value
Treasury Bills 4.8% 50,000
Ford (F) 6.4% 40,000
Harley Davidson (HOG) 12.2% 10,000
a. Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Penny's portfolio?
b. If Penny wants to increase her expected portfolio rate of return, she could increase the allocated weight of the portfolio she has invested in stock (Ford and Harley Davidson) and decrease her holdings of Treasury bills. If Penny moves all her money out of Treasury bills and splits it evenly between the two stocks, what will be her expected rate of return?
c. If Penny does move money out of Treasury bills and into the two stocks she will reap a higher expected portfolio return, so why would anyone want to hold Treasury bills in their portfolio?© BrainMass Inc. brainmass.com October 10, 2019, 8:25 am ad1c9bdddf
The current portfolio composition and the expected rates of returns are determined. The expected rate of return for Penny's portfolio are given.