Question

You own a portfolio that has $3,480 invested in Stock A and $7,430 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio?

Answer 1

Answer:

Expected return on portfolio will be 10.04 %

Explanation:

We have given that invested amount in stock A = $3480

Invested amount in stock B = $7430

Return on stocks A = 8 %

Return on stock B = 11 %

We have to find the expected return on portfolio

Expected return on portfolio = $\frac{Return\ on \ stock\ A\times value\ of\ A}{value\ of\ A+value\ of\ B}+\frac{Return\ on \ stock\ B\times value\ of\ B}{value\ of\ A+value\ of\ B}=\frac{0.08\times 3480}{3480+7430}+\frac{0.11\times 7430}{7430+3480}=0.1004$

So expected return on portfolio will be 10.04 %