Question

You want to create a $48,000 portfolio that consists of three stocks and has an expected return of 14.5 percent. currently, you own $16,700 of stock a and $24,200 of stock

b. the expected return for stock a is 18.7 percent, and for stock b it is 11.2 percent. what is the expected rate of return for stock c

Answer 1

The above answer can be calculated as -

Let the expected return of stock C be X

Given, Portfolio amount = $ 48,000, Expected return on portfolio = 14.5 %

Amount of expected return of portfolio = $ 48,000 X 14.5 % = $ 6,960

Now, the returns from the remaining two stock will be calculated -

Return on Stock A = $ 16,700 X 18.7 % = $ 3,122.90

Return on Stock B = $ 2,710.4

Total return = $ 3,122.9 + $ 2,710.4 + X = $ 6,960

X = $ 1,126.70

Remaining amount of portfolio = $ 48,000 - $ 16700 - $ 24200 = $ 7100

Expected return on Stock C = $ 1,126.70 / 7,100 = 15.9%