Question

You own a portfolio that is 25 percent invested in Stock X, 40 percent in Stock Y, and 35 percent in Stock Z. The expected returns on these three stocks are 10 percent, 13 percent, and 15 percent, respectively What is the expected return on the portfolio? (Do not include the percent sign (%). Round your answer to 2 decimal places

Answer 1

Answer:

12.95%

Explanation:

Expected return of portfolio (rP) = wX*rX + wY*rY +wZ*rZ

wX= weight of X =25% or 0.25 as a decimal

rX = return of X = 10% or 0.10    " "

wY = weight of Y =40% or 0.40   " "

rY = return of Y = 13% or 0.13       " "

wZ = weight of Z = 35% or 0.35   " "

rZ = return of Z = 15% or 0.15        " "

Next, plug in the numbers to the above formula;

(rP) = (0.25*0.10) +(0.40*0.13) +(0.35 * 0.15)

= 0.025 + 0.052 + 0.0525

= 0.1295

Therefore expected return of portfolio = 12.95%