Question

You have $63,000. You put 23% of your money in a stock with an expected return of 12%,$39,000 in a stock with an expected return of 13%, and the rest in a stock with an expected return of 21%. What is the expected return of your portfolio?

Answer 1

The expected return of the portfolio is approximately $1,031.30.

Step-by-step explanation:

To find the expected return of the portfolio, we need to calculate the weighted average return of each stock based on the amount invested in each stock.

Step 1:

Calculate the return for each stock:

- Stock 1: $63,000 * 0.23 * 0.12 = $1,758

- Stock 2: $39,000 * 0.13 = $5,070

- Stock 3: Remaining amount = $63,000 - $39,000 - ($63,000 * 0.23) = $8,010, so return is $8,010 * 0.21 = $1,682.1

Step 2:

Calculate the weighted average return:

- Stock 1 weight = $63,000 * 0.23 = $14,490

- Stock 2 weight = $39,000

- Stock 3 weight = $63,000 - $39,000 = $24,000.1

Total weight = $14,490 + $39,000 + $24,000.1 = $77,490.1

Weighted average return = (Return of Stock 1 * Stock 1 weight + Return of Stock 2 * Stock 2 weight + Return of Stock 3 * Stock 3 weight) / Total weight

= ($1,758 * $14,490 + $5,070 * $39,000 + $1,682.1 * $24,000.1) / $77,490.1

= $368.40 + $197.13 + $465.77 ≈ $1,031.30

Therefore, the expected return of the portfolio is approximately $1,031.30.