Question

A portfolio consists of $15,200 in Stock M and $23,400 invested in Stock N. The expected return on these stocks is 8.90 percent and 12.50 percent, respectively. What is the expected return on the portfolio

Answer 1

Answer:

Portfolio return = 11.08%

Explanation:

The expected return on the portfolio is the weighted average return of all the different stocks making up the portfolio. The weight of the individual stock would be the relative amount invested in each stock as a proportion of the total fund invested.

The expected return can be determined as follows

Weighted of stock A= 15,200/(15200+23400)=0.39

Weight of stock B = 23.400/((15200+23400)=   0.61  

Expected return on portfolio = (0.39 ×8.90% )  + (0.61*12.50%)= 11.08 %