Question

Daniella holds 90% of her assets in high-technology stocks, earning 12%, and 10% in long-term government bonds, earning 6%. the expected return on her portfolio is:

a. 11.4%.
b. 9%.
c. 6%.
d. 12%.

Answer 1

The expected return on Daniella's portfolio, with 90% in high-tech stocks (12% return) and 10% in government bonds (6% return), is calculated as 11.4%, through the sum of the weighted returns of each asset.

Step-by-step explanation:

The student asked how to calculate the expected return on a portfolio where 90% of the assets are in high-technology stocks earning 12%, and 10% are in long-term government bonds earning 6%. To calculate this, you apply the formula for the expected return of a portfolio, which is the sum of the weighted average returns of each asset class.

The calculation would be as follows:

(0.90 × 12%) + (0.10 × 6%) = 10.8% + 0.6% = 11.4%.

Therefore, the expected return on Daniella's portfolio is 11.4%, which corresponds to option a.