Art, Inc., has 2,500 shares of 5%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock out
1 answer:
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Answer:
12.46%
Explanation:
Data provided:
Amount invested in Stock A = $1,750
Amount invested in stock B = $3,950
Expected rate of return on stock A = 9%
Expected rate of return on stock B = 14%
Thus,
Expected amount of return on stock A
= Amount invested in Stock A × Expected rate of return on stock A
on substituting the respective values, we have
= $1,750 × 0.09 = $157.5
and,
Expected amount of return on stock B
= Amount invested in Stock B × Expected rate of return on stock B
on substituting the respective values, we have
= $3,950 × 0.14 = $553
Therefore, the total expected return from both the stocks = $157.5 + $553
= $710.5
Now,
the total amount invested = $1,750 + $3,950 = $5700
Hence, the expected rate of return on the portfolio
=
on substituting the values, we get
=
the expected rate of return on the portfolio = 12.46%