Question

(Diversifying Portfolios MC)

Two investment portfolios are shown with the amount of money placed in each investment and the ROR.
Investment
Tech Company Stock $2,800
Government Bond $3,200
Junk Bond
$950
Common Stock
$1,500
Portfolio 1 Portfolio 2
$1,275
$2,200
$865
$1,700
O Portfolio 2 earns $38.17 more.
Which portfolio earns the most, and by how much?
O Portfolio 1 earns $38.17 more.
O Portfolio 1 earns $76.20 more.
ROR
-3.75%
2.95%
4.56%
O Portfolio 2 earns $76.20 more..
7.18%

Answer 1

Answer: Portfolio 1:

Tech Company Stock: $2,800 * 2.95% = $82.60

Government Bond: $3,200 * 4.56% = $145.92

Total return for Portfolio 1 = $82.60 + $145.92 = $228.52

Portfolio 2:

Junk Bond: $950 * (-3.75%) = -$35.63

Common Stock: $1,500 * 7.18% = $107.70

Total return for Portfolio 2 = -$35.63 + $107.70 = $72.07

From the calculations, we can see that Portfolio 1 earns $228.52 in returns, while Portfolio 2 earns $72.07. Therefore, Portfolio 1 earns $228.52 - $72.07 = $156.45 more than Portfolio 2.

Explanation: