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In-s [12.5K]
3 years ago
5

Year-to-date, Oracle had earned a −1.53 percent return. During the same time period, Valero Energy earned 8.07 percent and McDon

ald's earned 0.70 percent. If you have a portfolio made up of 25 percent Oracle, 30 percent Valero Energy, and 45 percent McDonald's, what is your portfolio return?
Business
1 answer:
iris [78.8K]3 years ago
7 0

Answer:

The portfolio return is 2.35%

Explanation:

The portfolio return is the weighted average of the individual stock returns that form up the portfolio. The weightage of each stock is the investment in each stock as a percentage of total investment in the portfolio. The return of a three stock portfolio can be calculated using the following formula,

rP = rA * wA  +  rB * wB  +  rC * wC

Where,

  • rA, rB & rC represents the individual stock returns
  • wA, wB & wC represents the weightage of each stock

rP = -1.53% * 0.25 + 8.07% * 0.3 + 0.7% * 0.45  

rP = 0.023535 or 2.3535% rounded off to 2.35%

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The systematic risk principle states that the expected return on a risky asset depends only on the asset’s <u>market </u>risk.

<h3>What are systematic risk principles?</h3>

According to the systemic risk concept, the expected return on an asset is solely determined by its systematic risk. As a result, regardless of how much overall risk an asset carries, just the systematic part is significant in estimating the expected return (including risk premium) on such asset.

Market risk is a kind of systematic risk that affects the entire market. Because it cannot be diversified and distributed, the investor is compensated for it.

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