Question

How to calculate expected return on portfolio: A portfolio is comprised of 50% COLA and 50% GAS. Expected return on COLA is 2.1% in the next year and expected return on GAS is 0.8%. The expected return on the portfolio is
Please show all work and all of the steps necessary.

Answer 1

Expected return on COLA exists 2.1% in the next year and expected return on GAS exists 0.8% then the expected return on the portfolio exists 1.45%.    

What is meant by expected return?

Expected return is the overall sum of money they anticipate to benefit or lose on a selected funding or portfolio. Investors typically use the expected return to assist them makes key choices on whether or not to spend money on new automobiles or hold to maintain directly to their present investments.

The expected return is usually primarily based totally on historic returns. As such, it would not suggest the capability for destiny overall performance and should not be used because the handiest decision-making tool. This metric can, however, provide traders an inexpensive expectation of what they'll anticipate within side the short- and long-run.

Here, we have, Asset 1 = COLA with weight = 50%

                                       Expected Return = 2.1%

                       Asset 2 = GAS with weight = 50%

                                       Expected Return = 0.8%

Let the equation be,

Expected Portfolio Return = (Asset 1 Weight × Expected Return) + (Asset 2 Weight × Expected Return)

Putting the values in the formula, we get

= (50% × 2.1%) + (50% × 0.8%)

= 1.45%

Therefore, the expected return on the portfolio is 1.45%

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