Question

You own a portfolio that is invested 43 percent in stock a, 16 percent in stock b, and the remainder in stock

c. the expected returns on stocks a, b, and c are 9.1 percent, 16.7 percent, and 11.4 percent, respectively. what is the expected return on the portfolio

Answer 1

Multiply the investment fraction by the corresponding return, and add the products. The given fractions add to 59%, so the remainder is 41%. (The total of the fractions is 100%—all of the portfolio.)

... 0.43*9.1% + 0.16*16.7% + 0.41*11.4%

... = 3.913% + 2.672% + 4.674% = 11.259%