Question

What is the return on a portfolio that consists of: $50,000 in an index fund, $30,000 in a bond fund, and $20,000 in a foreign stock fund? The expected returns are 7 percent, -3 percent, and 18 percent, respectively.

a) $4,400
b) $2,400
c) $5,400
d) $6,400

Answer 1

The return on a portfolio consisting of an index fund, bond fund, and foreign stock fund can be calculated by multiplying the amount invested in each fund by its respective expected return and summing up the results. The total return on this portfolio is $6,400.

Step-by-step explanation:

The return on a portfolio can be calculated by multiplying the amount invested in each fund by its respective expected return, and then summing up the results.

For example, with $50,000 invested in an index fund with an expected return of 7%, the return would be $50,000 * 0.07 = $3,500. Similarly, with $30,000 in a bond fund with an expected return of -3%, the return would be $30,000 * (-0.03) = -$900. Finally, with $20,000 in a foreign stock fund with an expected return of 18%, the return would be $20,000 * 0.18 = $3,600.

Adding up the returns from each fund, the total return on the portfolio would be $3,500 + (-$900) + $3,600 = $6,200.

Therefore, the correct answer is d) $6,400.