Question

You own a portfolio that has $1,500 invested in Stock A and $3,550 invested in Stock B. If the expected returns on these stocks are 9 percent and 18 percent, respectively, what is the expected return on the portfolio?(Do not round your intermediate calculations.)

Multiple Choice

• 15.63%

• 16.09%

• 13.50%

• 11.67%

• 15.33%

Answer 1

E. 15.33%

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 = $1,500 + $3,550

Total value = $5,050

So, the expected return of this portfolio is:

E(Rp) = ($1,500/$5,050)(0.09) + ($3,550/$5,050)(0.18)

E(Rp) = 0.1533 or 15.33%