Final answer:
To calculate Amy's portfolio expected return, we use the weighted average of the expected returns of Stocks A, B, and C, based on their proportions of the total investment. Amy's portfolio expected return is 13.60% after rounding to two decimal places.
Step-by-step explanation:
To calculate the expected return of Amy's portfolio consisting of Stock A, Stock B, and Stock C, we need to use the weighted average formula. Each stock's expected return must be weighted according to the proportion of the total investment it represents, then summed to find the total expected return for the entire portfolio.
First, we calculate the total amount invested in the portfolio:
- $2,457 (Stock A)
- $2,527 (Stock B)
- $4,125 (Stock C)
Total Investment = $2,457 + $2,527 + $4,125 = $9,109
Next, we find the proportion of the total investment for each stock:
- Proportion for Stock A = $2,457 / $9,109
- Proportion for Stock B = $2,527 / $9,109
- Proportion for Stock C = $4,125 / $9,109
Now we calculate the weighted return for each stock:
- Weighted return for Stock A = Proportion for Stock A × 13%
- Weighted return for Stock B = Proportion for Stock B × 26%
- Weighted return for Stock C = Proportion for Stock C × 8%
Expected Portfolio Return = Weighted return for Stock A + Weighted return for Stock B + Weighted return for Stock C
Finally, plugging in the numbers:
Expected Portfolio Return = ($2,457 / $9,109 × 13%) + ($2,527 / $9,109 × 26%) + ($4,125 / $9,109 × 8%)
Expected Portfolio Return = 0.2698 + 0.7240 + 0.3612
Expected Portfolio Return = 13.60% (rounded to two decimals)
Amy's portfolio expected return is 13.60%.