Johnson Investment currently has a portfolio of $1,300,000. Assume the next five years return of this portfolio
is 8%, -5%, 11%, 8%, and 6%. What is the portfolio value after the five- year period? O $1,694,897 O $1,812,063
O $1,699,048 O $1,402,754 O $1,412,788

 

 

Portfolio value after five year period is computed using the equation given below:

Portfolio value after five years = Current value of the portfolio * (1 + Year 1 return) * (1 + Year 2 return) * (1 + Year 3 return) * (1 + Year 4 return) * (1 + Year 5 return)

= $1,300,000 * (1 + 0.08) * (1 - 0.05) * (1 + 0.11) * (1 + 0.08) * (1 + 0.06)

= $1,300,000 * 1.08 * 0.95 * 1.11 * 1.08 * 1.06

= $1,694,897

Hence, option (1) $1,694,897 is correct.