Question

HNL has an expected return of 18% and KOA has an expected return of 22​%. If you create a portfolio that is 60​% HNL and 40% ​KOA, what is the expected return of the​ portfolio?

Answer 1

The expected return of a portfolio that is 60% HNL with an 18% return and 40% KOA with a 22% return is calculated by multiplying each investment's return by its weight and summing these figures, resulting in an expected return of 19.6%.

Step-by-step explanation:

To calculate the expected return of a portfolio, you multiply the return of each individual investment by its weight within the portfolio and then sum up these results. In the case of a portfolio that is 60% HNL with an expected return of 18% and 40% KOA with an expected return of 22%, the calculation would be as follows:

Expected return of the portfolio = (Weight of HNL × Return of HNL) + (Weight of KOA × Return of KOA)

Expected return of the portfolio = (0.60 × 18%) + (0.40 × 22%)

Expected return of the portfolio = (0.60 × 0.18) + (0.40 × 0.22)

Expected return of the portfolio = 0.108 + 0.088

Expected return of the portfolio = 0.196 or 19.6%