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The price of stock A rises by 6% for every percent rise in the DJIA. The price of stock...

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timw996 | Student, Grade 10 | (Level 1) Salutatorian

Posted September 3, 2013 at 5:24 PM via web

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The price of stock A rises by 6% for every percent rise in the DJIA. The price of stock B rises by only 0.8% and the price of stock C rises by 2.4% for a percent rise in the DJIA. If a portfolio initially has $1200 of A, $800 of B and $2400 of C, what is the portfolio value when the DJIA rises by 3.2%?

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted September 3, 2013 at 5:32 PM (Answer #1)

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When the DJIA rises by 1%, the price of stock A rises by 6%, the price of stock B rises by 0.8% and the price of stock C rises by 2.4%.

A portfolio is created with $1200 invested in stock A, $800 invested in stock B and $2400 invested in stock C.

If the DJIA rises by 3.2%, the price of stock A rises by 19.2%, the price of stock B rises by 2.56% and the price of stock C rises by 7.68%. This gives the value of the portfolio after the DJIA rises by 3.2% as 1.192*1200 + 1.0256*800 + 1.0768*2400 = 4835.2

The new value of the portfolio of stocks after the DJIA rises by 3.2% is $4835.2

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