Question

You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio?

a. 15.2%
b. 16.0%
c. 16.8%
d. 17.6%

Answer 1

The correct answer is option c. 16.8%, which means that I can have an expected return of 16.8%.Let us go through the solution to know how option c. is the correct one.

The expected return of the portfolio can be calculated by weighing the expected returns of each investment based on their respective percentages in the portfolio.

In this case, with 40 percent invested in an investment with an expected return of 12 percent and 60 percent invested in an investment with an expected return of 20 percent, we can calculate the expected return of the portfolio as follows:

Expected Return of Portfolio = (Weight of Investment 1 * Expected Return of Investment 1) + (Weight of Investment 2 * Expected Return of Investment 2)

= (0.40 * 0.12) + (0.60 * 0.20)

= 0.048 + 0.120

= 0.168

Therefore, the expected return of the portfolio is 16.8%. Hence, the correct answer is option c. 16.8%.

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