Question

You own a portfolio that has $2,968 invested in Stock A and $3,083 invested in Stock B. If the expected returns on these stocks are 10 percent and 9 percent, respectively, what is the expected return (in percent) on the portfolio? Answer to two decimals.

Answer 1

Ques1).

Invested in stock A = $2968

Invested in stock B = $3083

Total investment = 2968 + 3083 = $6051

weight of stock A = 2968/6051 = 49.05%

weight of stock B = 3083/6051 = 50.95%

return on stock A = 10%

return on stock B = 9%

so, return on portfolio is weighted average of the return

Expected return on portfolio = 10*0.4905 + 9*0.5095 = 9.49%

Ques2).

Total portfolio value = $11472

return on stock X = 14.41%

return on stock Y = 9.79%

so, return on portfolio is weighted average of the return

Let, weight of X be w, then weight of stock Y is 1-w

Expected return on portfolio = 14.41*w + 9.79*(1-w) = 11.49%

So, w = 36.80%

weight of stock X = 36.80%

So, value invest in X = 0.368*11472 = $4221.30

So value invested in stock Y = 11472 - 4221.30 = $7250.70