Question

You own a portfolio that has $1,550 invested in Stock A and $3,000 invested in Stock B. If the expected returns on these stocks are 8 percent and 15 percent, respectively, what is the expected return on the portfolio? Multiple Choice 12.87% 10.38% 13.25%

Answer 1

The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset. The total value of the portfolio is:

Total value = $1,550 + $3,000 = $4,550

Expected return on the portfolio = ($1,550/$4,550)(0.08) + ($3,000/$4,550)(0.15)

Expected return on the portfolio = 0.1262 or 12.62%