Question

A portfolio has $100,000 invested in StockA and $200,000 invesed in Stock B. If the expected returns on these stocks are 10 percent and five percent, respectively, what is the expected return on this poetfolio? 5.5556 percent 6.6667 percent. 7.5 percent 8.3333 D. percent 8.8889 peroent E.

please show how to find solution please

Answer 1

porfeturn for =(w1 x r1) + (w2 x r2) + ... + (wn x rn) a Portfolio

w1 = $100,000/($100,000 + $200,000) = 33.3333%

w2 = $200,000/($100,000 + $200,000) = 67.7777%

Expected Return = 33.3333% * 10% + 67.7777% * 5%

Expected Return = 6.6667% (Option B)