A. Portfolio Diversification Exercises 1 to 6 are based on the table below, showing the prices of the stocks of four different companies on January 1, 2006 and January 15, 2007. No stock splits occurred for any of these companies. 1/15/06 1/15/07 East Corp. West Corp. $40.00 $25.00 $45.00 $20.05 North Corp. $10.00 $15.50 South Corp $100.00 $81.50 1. On a percentage basis, which of the four companies listed in the table above was the best performer? Which company was the worst performer? 2. Suppose that I invested $5,000 in East Corp. on January 15, 2006. How many shares would I get for this investment? How many shares would I have got for $5,000 invested in West Corp.? North? South? 3. Calculate the value on January 15, 2007, of a $5,000 investment made in East Corp. on January 15, 2006. Do the same for each of the other three companies. 4. Suppose that instead of investing $5,000 in just one of the companies, I instead invested $1,250 in each of the four. What would the value of this portfolio have been on January 15, 2007? 5. Suppose that instead of investing $5,000 in just one of the companies, I instead decided to invest in a mix of the four. However, since I felt a little stronger about some of the companies than others, I did not invest equal amounts in all four. I invested $1,500 each in East and South, and $1,000 each in West and North. What was the value of my portfolio on January 15, 2007? Exercises 6.4 299 6. Four of the lines in the graph below show the value of $5,000 invested in each of the four individual companies. One of the lines shows the value of a portfolio composed of $1,250 in each stock. Which line represents the portfolio? AB ------C---D E Value Time R Accet Allocation