Question

#1 Your retirement portfolio comprises 200 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $134 and that of AGG is $110. If you expect the return on SPY to be 10% in the next year and the return on AGG to be 8%, what is the expected return for your retirement portfolio?

Answer 1

Step-by-step explanation:

Expected return of portfolio is weighted average return of the components of portfolio.

Total portfolio = (200 * $134) + (100 * $110) = $37,800

Weight of S&P 500 = 26,800/37,800 = 70.90%

Weight of AGG = 11,000/37,800 = 29.10%

Expected return = (70.90% * 10%) + (29.10% * 8%) = 9.42%