Question

Find the expected return on a portfolio of the following three stocks, A, B, and C. Expected % Invested Stock Return in each stock 10% 30% 14% 50% 12% 20% 12.0% 12.4% 12.8% 13.0%

Answer 1

Stock	Expected return	% invested in each stock
A	10%	30%
B	14%	50%
C	12%	20%

Weight of stock A in the portfolio = wA = 30% , Expected return of stock A in the portfolio = E[RA] = 10%

Weight of stock B in the portfolio = wB = 50% , Expected return of stock B in the portfolio = E[RB] = 14%

Weight of stock C in the portfolio = wC = 20% , Expected return of stock C in the portfolio = E[RC] = 12%

Expected return of the portfolio is calculated using the forllowing formula:

Expected return of the protfolio = E[RP] = wA*E[RA] + wB*E[RB] + wC*E[RC] = 30%*10% + 50%*14% + 20%*12% = 0.03 + 0.07 + 0.024 = 0.124 = 12.4%

Answer -> 12.4%