Question

The ACE Equity Fund has an expected return E[r] of 11.830% and the ZQR Bond Fund has an expected return E[r] of 6.690%. A portfolio comprised of 3% ACE and 97% ZQR would have an expected return of __________%. (percent, rounded three places after decimal)

Answer 1

Answer:

The answer is "6.8442%".

Explanation:

The expected portfolio return is the total average portfolio return for all stocks

ACE fund weight (wA) =3%

ACE fund (ErA) expected return= 11.830%

Bond fund ZQR weight (wB) = 97%.

The ACE fund (ErB) expected return = 6.690%

Expected portfolio return = $(wA \times ErA)+(wB \times ErB)$

                                          $=(3\% \times 11.830 \% )+(97 \% \times 6.690\%)\\\\= 0.03 \times 0.1183 +0.97 \times 0.0669 \\\\=0.003549+ 0.064893\\\\=0.068442\\\\=6.8442 \%$