Question

Question 4 (1 point) Stock 1 2 3 $ Invested S300 S400 $400 Expected Return 6% 12% 17% Given the above exhibit, what is the expected return on the portfolio? (Enter your answers as a decimal rounded to 2 decimal places, not a percentage. For example, enter 8.43% instead of 0.0843) Your Answer: Answer units

Answer 1

Solution:-

Total Portfolio Value = Invested in stock 1 + Invested in stock 2 +Invested in stock 3

Total Portfolio Value = $300 + $400 + $400

Total Portfolio Value = $1,100

To Calculate Expected Return on Portfolio-

Expected Return is weighted Average Return.

Expected Return = $E(R) of Stock 1 * \frac{Invested in Stock 1}{Total Portfolio Value} + E(R) of Stock 2 * \frac{Invested in Stock 2}{Total Portfolio Value} + E(R) of Stock 3 * \frac{Invested in Stock 3}{Total Portfolio Value}$

Expected Return =

0.06 * 300 +0.12 1. 100 400 400 -0.17* 1. 100 1. 100

Expected Return = 12.18%

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