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In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11...

In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 0.11 and 0.08 per year, respectively, then what is the minimum expected annual return for Stock 3 that will enable Michele to achieve her investment requirement? Round to two decimal places

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Answer #1

Portfolio Return = Weighted average return

0.11 = 0.11*25% + 0.08*50% + Return from Stock 3*25%

Return from stock 3 = 0.17

Hence, required minimum annual return from Stock 3 = 0.17

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