Question

A portfolio consists of $14,600 in Stock M and $21,900 invested in Stock N. The expected return on these stocks is 8.60 percent and 12.20 percent, respectively. What is the expected return on the portfolio?

O 10.04%
O 10.76%
O 11.48%
O 10.40%
O 9.20%

Answer 1

The expected return on the portfolio, comprising investments in Stock M and Stock N with returns of 8.60% and 12.20% respectively, is calculated to be 10.76%.

option b is the correct

Step-by-step explanation:

To calculate the expected return on a portfolio, you need to take a weighted average of the expected returns of the individual investments within the portfolio, where the weights are the proportion of the total portfolio each investment represents. In the case of the portfolio consisting of $14,600 in Stock M and $21,900 in Stock N, with expected returns of 8.60 percent and 12.20 percent respectively, you would perform the following calculation:

• Calculate the total value of the portfolio: $14,600 + $21,900 = $36,500.
• Calculate the weight of Stock M in the portfolio: $14,600 / $36,500 ≈ 0.4 (40%).
• Calculate the weight of Stock N in the portfolio: $21,900 / $36,500 ≈ 0.6 (60%).
• Multiply each stock's expected return by its weight: (0.4 * 8.60%) + (0.6 * 12.20%) = 3.44% + 7.32%.
• Add these weighted returns together to find the portfolio's expected return: 3.44% + 7.32% = 10.76%.

Therefore, the expected return on the portfolio is 10.76%.