Question

Your portfolio has three asset classes. U.S. government​ T-bills account for 47​% of the​ portfolio, large-company stocks constitute another 38​%, and​ small-company stocks make up the remaining 15​%. If the expected returns are 4.08​% for the​ T-bills, 11.38​% for the​ large-company stocks, and 15.53​% for the​ small-company stocks, what is the expected return of the​ portfolio?

Answer 1

ER = 8.57%

Step-by-step explanation:

The total expected return can be calculated by computing return with weights of the portfolio.

Expected Return

= W1*R1 + W2*R2 +W3*R3

where W1 is the weight of 1 asset and subsequent assets as W2 and W3.

R1 = return of assets and subsequent assets as R2 and R3,

ER = 0.47(0.0408) + 0.38(0.1138) + 0.15(0.1553)

ER = 8.57%

Hope that helps.

Answer 2

Expected return of the​ portfolio = 8.57%

Step-by-step explanation:

The expected return of the portfolio is the weighted average return of all assets in that portfolio, which is calculated as below:

The expected return of the portfolio = (Weight of U.S. government​ T-bills x Return of U.S. government​ T-bills) + (Weight of large-company stocks x Return of large-company stocks) + (Weight of small-company stocks x Return of small-company stocks)

= 47% x 4.08% + 38% x 11.38% + 15% x 15.53% = 8.57%