Question

You own a portfolio that is 23 percent invested in Stock X, 38 percent in Stock Y, and 39 percent in Stock Z. The expected returns on these three stocks are 11 percent, 14 percent, and 16 percent, respectively. What is the expected return on the portfolio

Answer 1

Answer:

The expected return on the portfolio is 14.09%.

Explanation:

Expected return on a portfolio refers to addition of the mu;ti[licatiom of weight in the portfolio and expected return of all the investment in the same portfolio.

Therefore, the expected return on this portfolio can be calculated using the following formula:

PER = (rX * wX) + (rY * wY) + (rZ * wZ) ....................... (1)

Where,

PER = Portfolio expected return = ?

rX = Expected returns on stock X = 11%

wX = Weight of amount invested in stock X = 23%

rY = Expected returns on stock Y = 14%

wY = Weight of amount invested in stock Y = 38%

rZ = Expected returns on stock Z = 16%

wZ = Weight of amount invested in stock Z = 39%

Substituting the values into equation (1), we have:

PER = (11% * 23%) + (14% * 38%) + (16% * 39%) = 14.09%

Therefore, the expected return on the portfolio is 14.09%.