Question

Calculating Expected Returns A portfolio is invested 20 percent in Stock G, 35 percent in Stock J, and 45 percent in Stock K. The expected returns on these stocks are 9.6 percent, 10.9 percent, and 14.3 percent, respectively. What is the portfolio's expected return? How do you interpret your answer?

Answer 1

Portfolio return = $\sum$ ( Stock return * Proportion)

=(0.2* 9.6% + 0.35* 10.9% + 0.45 * 14.3%)

= 12.7%

Porftfolio return is the weighted average of the individual stock returns and the expected returns of 12.7% falls somewhere in between the returns Stock G, Stock J and Stock K.