Return on the portfolio

[Thu Thuy]

The weights and returns for individual positions in a portfolio are shown below:

Position ____Mkt. Value at 1/1/05($mm)_____Return for 2005(%)
__A_____________1.3____________________-2.0________
__B_____________1.4____________________-4.2________
__C_____________2.2____________________+6.4________
__D_____________3.9____________________+2.1________
__E_____________1.7____________________-0.8_________

What is the return on the porfolio?

A) +1.18%
B) -1.20%
C) +1.50%
D) +2.48%

I don't understand why the answer key take the positive value of return while some weights of individual investment position get negative? Thank you!

------------
Thu Thuy

 

[preccie]

The answer should be A.

(1.3*-2.0)+(1.4*-4.2)+(2.2*6.4)+(3.9*2.1)+(1.7*-0.8)=12.43

12.43/Sum(1.3, 1.4,...1.7)=1.18

 

[30sec2mars]

Agree with A

 

[cjones65]

I'll tell you why. More than half of the portfolio (58%) consisted of positions that had positive returns. That's why.

 

[cjones65]

cjones65 Wrote:
-------------------------------------------------------
> I'll tell you why. More than half of the portfolio
> (58%) consisted of positions that had *positive
> returns. That's why.
===============================

*...that is, sufficiently positive to off-set the negative returns of the lesser-weighted positions

 

[Chuckrox8]

Thu Thuy Wrote:
-------------------------------------------------------
> The weights and returns for individual positions
> in a portfolio are shown below:
>
> Position ____Mkt. Value at 1/1/05($mm)_____Return
> for 2005(%)
> __A_____________1.3____________________-2.0_______
> _
> __B_____________1.4____________________-4.2_______
> _
> __C_____________2.2____________________+6.4_______
> _
> __D_____________3.9____________________+2.1_______
> _
> __E_____________1.7____________________-0.8_______
> __
>
> What is the return on the porfolio?
>
> A) +1.18%
> B) -1.20%
> C) +1.50%
> D) +2.48%
>
> I don't understand why the answer key take the
> positive value of return while some weights of
> individual investment position get negative? Thank
> you!

Just by eyeballing the heavier weighted positive positions you can tell that their gains are going to offset the losses from the negative positions. You should be able to eliminate B right off the bat. The negative returns on the other three weightings should tell you that D isn't going to be the likely choice either. If you follow preccie's method you can finish this problem in 45 seconds.