Question


Your retirement portfolio comprises 300 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fu
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Answer #1
Solution:
Answer is   A. 13.48%
Working Notes:
Expected return of portfolio = Weighted average expected return of Individual assets
Expected return of portfolio = Weight of SPY x Er SPY + Weight of AGG x Er AGG
Notes: weight of each components of portfolio is not given we have to compute weight of each components before getting expected return of the portfolio.
Weight of SPY in the portfolio
= (Number of shares of SPY x Price of SPY per share)/(Number of shares of SPY x Price of SPY per share + Number of shares of AGG x Price of AGG per share)
=(300 x $138)/((300 x $138) + (100 x $97))
=0.810176
Weight of AGG in the portfolio
= (Number of shares of AGG x Price of AGG per share)/(Number of shares of SPY x Price of SPY per share + Number of shares of AGG x Price of AGG per share)
=(100 x $97)/((300 x $138) + (100 x $97))
=0.189824
Expected return on SPY Er SPY = 15%
Expected return on SPY Er AGG = 7%
Expected return of portfolio = Weighted average expected return of Individual assets
Expected return of portfolio = Weight of SPY x Er SPY + Weight of AGG x Er AGG
=0.810176 x 15% + 0.189824 x 7%
=0.13481408
=13.48%
Please feel free to ask if anything about above solution in comment section of the question.
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