Question

Toyota Corp.'s stock is $35 per share. Its expected return is 22% and variance is 11%. Honda Corp.'s stock is $22 per share. Its expected return is 17% and variance is 7%. Benz Corp.'s stock is $45 per share. Its expected return is 13% and variance 7%. What would be the expected return of a portfolio consisting of 50% Toyota and 50% Honda?

%

Answer 1

The expected return of a portfolio consisting of 50% Toyota and 50% Honda is 19.5%.

Step-by-step explanation:

To find the expected return of a portfolio consisting of 50% Toyota and 50% Honda, we need to calculate the weighted average of their expected returns. We multiply the expected return of each stock by its weight and then sum the results.

For Toyota: Expected return = 22%, Weight = 50%
For Honda: Expected return = 17%, Weight = 50%

Using the formula: Expected return of the portfolio = (Expected return of Toyota * Weight of Toyota) + (Expected return of Honda * Weight of Honda) = (22% * 50%) + (17% * 50%) = 11% + 8.5% = 19.5%