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Question 4 (1 point) Stock 1 2 3 $ Invested S300 S400 $400 Expected Return 6% 12% 17% Given the above exhibit, what is the ex
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Answer #1

Solution:-

Total Portfolio Value = Invested in stock 1 + Invested in stock 2 +Invested in stock 3

Total Portfolio Value = $300 + $400 + $400

Total Portfolio Value = $1,100

To Calculate Expected Return on Portfolio-

Expected Return is weighted Average Return.

Expected Return = E(R) of Stock 1 * \frac{Invested in Stock 1}{Total Portfolio Value} + E(R) of Stock 2 * \frac{Invested in Stock 2}{Total Portfolio Value} + E(R) of Stock 3 * \frac{Invested in Stock 3}{Total Portfolio Value}

Expected Return = 0.06 * \frac{300}{1,100} + 0.12 * \frac{400}{1,100} + 0.17 * \frac{400}{1,100}

Expected Return = 12.18%

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