Question

You own a portfolio that has $2,800 invested in Stock A and $3,900 invested in Stock B. Assume the expected returns on these stocks are 9 percent and 15 percent, respectively. What is the expected return on the portfolio

Answer 1

Answer:

12.5%

Explanation:

A portfolio has $2,800 invested in stock A

$3,900 is invested in stock B

The expected return of stock A is 9%

= 9/100

= 0.09

The expected return of stock B is 15%

= 15/100

= 0.15

The first step is to calculate the total value

= $2,800+$3,900

= $6,700

Therefore, the expected return on the portfolio can be calculated as follows

= (2,800/6,700)×0.09 + (3,900/6,700)×0.15

= 0.4179×0.09 + 0.5820×0.15

= 0.03761 + 0.0873

= 0.1249×100

= 12.5%

Hence the expected return on the portfolio is 12.5%