Problem 8-03 A portfolio consists of assets with the following expected returns: Technology stocks 31 %...
Problem 8-03
A portfolio consists of assets with the following expected returns:
Technology stocks 31 %
Pharmaceutical stocks 17
Utility stocks 10
Savings account 5
a. What is the expected return on the portfolio if the investor spends an equal amount on each asset? Round your answer to two decimal places.
b. What is the expected return on the portfolio if the investor puts 55 percent of available funds in technology stocks, 14 percent in pharmaceutical stocks, 19 percent in utility stocks, and 12 percent in the savings account? Round your answer to two decimal places.
Homework Answers
Ans a) 15.75%
| STOCK | Probability (P) | RETURN (Y) | (P * Y ) |
| Technology stocks | 25.00% | 31 | 7.75 |
| Pharmaceutical stocks | 25.00% | 17 | 4.25 |
| Utility stocks | 25.00% | 10 | 2.50 |
| Savings account | 25.00% | 5 | 1.25 |
| TOTAL | 15.75 | ||
| Expected Return = | (P * Y) | ||
| 15.75% |
Ans b) 21.93%
| STOCK | Probability (P) | RETURN (Y) | (P * Y ) |
| Technology stocks | 55.00% | 31 | 17.05 |
| Pharmaceutical stocks | 14.00% | 17 | 2.38 |
| Utility stocks | 19.00% | 10 | 1.90 |
| Savings account | 12.00% | 5 | 0.60 |
| TOTAL | 21.93 | ||
| Expected Return = | (P * Y) | ||
| 21.93% |
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