Question

A portfolio is invested 20 percent in Stock G, 60 percent in Stock J, and 20 percent in Stock K. The expected returns on these stocks are 9 percent, 15 percent, and 21 percent, respectively. What is the portfolio's expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

The portfolio's expected return is 15%

Explanation:

The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset.

So, the expected return of the portfolio is:

E(RP) = 0.20(.09) + 0.60(.15) + 0.20(.21)

= 0.018 + 0.09 + 0.042

E(RP) = 0.15 or 15%

If we own this portfolio, we would expect to earn a return of 15 percent.