Question

you own a portfolio that is 33 percent invested in stock x, 48 percent in stock y, and 19 percent in stock z. the expected returns on these three stocks are 9 percent, 12 percent, and 14 percent, respectively. what is the expected return on the portfolio?

Answer 1

The expected return on the portfolio, which is composed of three stocks with different allocated percentages and individual returns, is 11.39%.

Step-by-step explanation:

To calculate the expected return on the portfolio, we need to multiply the percentage invested in each stock by its expected return and then sum up the results. Here's the breakdown for the portfolio

Investment in Stock X: 33% with an expected return of 9%

Investment in Stock Y: 48% with an expected return of 12%

Investment in Stock Z: 19% with an expected return of 14%

The expected return on the portfolio (Rp) can be calculated using the formula:

Rp = (Weight of Stock X × Return of Stock X) + (Weight of Stock Y × Return of Stock Y) + (Weight of Stock Z × Return of Stock Z)

Substituting the values into the formula we get:

Rp = (0.33 × 0.09) + (0.48 × 0.12) + (0.19 × 0.14)

Now calculate the expected return:

Rp = 0.0297 + 0.0576 + 0.0266

= 0.1139 or 11.39%

The expected return on the portfolio is 11.39%.