Question

You own a portfolio that has 6,600 shares of stock A, which is priced at 13.3 dollars per share and has an expected return of 6.76 percent, and 2,400 shares of stock B, which is priced at 21.2 dollars per share and has an expected return of 12.68 percent. The risk-free return is 2.59 percent and inflation is expected to be 1.57 percent. What is the expected real return for your portfolio? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer 1

Stock weight A B Number of share price 6,600.00 2,400.00 13.30 21.20 Value(No. of Share *price 87,780.00 50,880.00 Return 0.6331 0.3669 6.76 12.68 138,660.00 the expected return from the portfolio is (0.6331 * 6.76 + 0.3669 * 12.68) 8.93 the expected real return (1+0.0893)/(1+0.0157) - 1 7.25%