Question

Homework help!!

You have $66,000. You put 19% of your money in a stock with an expected return of 10%, $34,000 in a stock with an expected retum of 14%, and the rest in a stock with an expected return of 19%. What is the expected return of your portfolio? The expected return of your portfolio is %. (Round to two decimal places.)

Answer 1

Total Amount = $66000

First Stock

Weight of first stock = W₁ = 19%, Expected return of the first stock = E[R₁] = 10%

Amount invested in second stock = $34000

Second stock

Weight of the second stock = W₂ = Amount invested in second stock/Total amount invested = 34000/66000 = 51.5151515151515%

Expected return of second stock = E[R₂] = 14%

The rest of the money is invested in the third stock.

Third stock

Weight of the third stock = W₃ = 100% - W₁ - W₂ = 100% - 19% - 51.5151515151515% = 29.4848484848485%

Expected return of the third stock = E[R₃] = 19%

Portfolio

W₁ = 19%, E[R₁] = 10%; W₂ = 51.5151515151515%, E[R₂] = 14%; W₃ = 29.4848484848485%, E[R₃] = 19%

Expected return of the portfolio is calculated using the formula:

Expected return of the portfolio = E[R_P] = W₁*E[R₁] + W₂*E[R₂] + W₃*E[R₃​​​​​​​] = 19%*10% + 51.5151515151515%*14% + 29.4848484848485%*19% = 14.7142424242424% ~ 14.71% (Rounded to two decimals)

Answer -> The expected return of your portfolio is 14.71 %