Question

What is the expected return on the portfolio if the investor puts 55 percent of available funds in technology stocks, 12 percent in pharmaceutical stocks, 20 percent in utility stocks, and 13 percent in the savings account?

Answer 1

Answer: See Explanation

Explanation:

You didn't indicate the assets and their expected returns but I found one online which I can use as an example.

Let's say the portfolio has assets that has the following return:

Technology stocks = 20%

Pharmaceutical stocks = 15%

Utility stocks = 10%

Savings account = 5

Technology stocks:

Weight = 55%

Expected return = 20%

Weighted return = 55% × 20%

= 0.55 × 0.2 = 0.11 = 11%

Pharmaceutical stocks

Weight = 12%

Expected return = 15%

Weighted return = 12% × 15% = 0.12 × 0.15 = 0.018 = 1.8%

Utility stocks

Weight = 20%

Expected return = 10%

Weighted return = 20% × 10%

= 0.2 × 0.1 = .02 = 2%

Savings account

Weight = 13%

Expected return =5%

Weighted return = 13% × 5% = 0.65%

Expected return on the Portfolio will be:

= 11% + 1.8% + 2% + 0.65%

= 15.45%

Note that:

Weighted return = Weight × Expected return