Final answer:
The question asks for the expected rate of return on a two-stock mutual fund portfolio, but the necessary information regarding expected returns and weight allocation is not provided. The expected rate of return for a portfolio is typically the weighted average of the individual securities' returns. Historical data points to a tradeoff between risk and return that investors must consider.
Step-by-step explanation:
The question pertains to the expected rate of return one should expect to earn on a two-stock portfolio from the Century Mutual fund. However, the provided information does not specify the expected returns or the allocation of each stock in the portfolio. To calculate the expected rate of return on a portfolio, one typically needs the expected return of each security in the portfolio and their respective weights within the portfolio. The expected portfolio return is the weighted average of the expected returns of the securities, where the weights are the proportion of the total portfolio value that is invested in each security.
If the expected returns and weights were provided, the formula for the expected return of a two-stock portfolio would be: Expected Return = (Weight of Stock A × Expected Return of Stock A) + (Weight of Stock B × Expected Return of Stock B).
Using the given information about investment returns and risks from historical data on stocks and mutual funds, investors can gauge the tradeoffs between risk and return when making investment decisions. These historical data highlights how dividends and capital gains have contributed to the total returns of the S&P 500 index over the years. Investors must consider their individual financial situation, investment horizon, and risk tolerance when choosing investments to accumulate personal wealth.