Question

You own a portfolio that has $3,950 invested in stock A and $4,600 invested in stock B. If the

expected returns on these stocks are 8% and 11%, respectively, what is the expected return on

the portfolio?

-Please check the answers and show all work typed out. No excel or grid style please as I am on mobile.

Answer 1

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 = $3,950 + $4,600

Total value = $8,550

So, the expected return of this portfolio is:

E(Rp) = ($3,950/8,550)(0.08) + ($4,600/$8,550)(0.11)

E(Rp) = 0.0961 or 9.61%