Question

You own a portfolio that has $3074 invested in Stock A and $3739 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio? (Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 2 decimal places. For example, 0.12345 or 12.345% should be entered as 12.35.)

Answer 1

The expected return on the portfolio with $3074 invested in Stock A and $3739 invested in Stock B, with expected returns of 8% and 11% respectively, is calculated to be 9.65%.

Step-by-step explanation:

To calculate the expected return on a portfolio, we multiply the investment in each stock by its expected return and then sum these products.

In this case, we have a portfolio with $3074 invested in Stock A with an expected return of 8%, and $3739 invested in Stock B with an expected return of 11%. The calculation for the expected return is as follows:

Expected Return = (Investment in Stock A × Return of Stock A) + (Investment in Stock B × Return of Stock B) / Total Investment

Expected Return = ($3074 × 0.08) + ($3739 × 0.11) / ($3074 + $3739)

Expected Return = (245.92) + (411.29) / (6813)

Expected Return = 657.21 / 6813

Expected Return = 0.0965 or 9.65%

This means the expected return on the portfolio is 9.65%.