Question

You buy 50 stocks of Company A, 30 of Company B, and 20 of Company C. The annual returns of these companies are 8%, 12%, and 10% respectively. The average return for one year is the closest to:______

Answer 1

Answer:

Average return for one year is 9.6 %

Explanation:

Computation of average return

Lets assume the cost of each share to be 100

                                                       Opening    Growth             Closing

                                                         Value            %                   Value

Company A  50 % at 100                5,000              8 %                 5,400

Company B 30 % at 100                 3,000              12 %                3,360    

Company C 20 % at 100                  2,000             10 %                2,200

Total values                                     10,000                                     10,960

Increase in value over base divided by base equals the average return

10,960 -  10,000  =  960/ 10000  = 9.6 % average return