Question

The expected return of the current portfolio is 10%. A new project is being considered that would be added to the existing portfolio if accepted. The new project would comprise 40% of the entire new portfolio. The expected return of the new project is 11%. Calculate the expected return of the combined new portfolio.

Answer 1

10.4%

Step-by-step explanation:

The computation of the expected return of the combined new portfolio is shown below:

= (Expected return of the current portfolio × weightage of current portfolio) + (expected return of the new project × weightage of new portfolio)

= (10% × 60%) + (11% × 40%)

= 6% + 4.4%

= 10.4%

The weighatge of current portfolio is come from

= 100% - 40%

= 60%