Question

3. You own a portfolio that has $4,740 invested in Stock A and $3,260 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio

Answer 1

Portfolio expected return = 0.092225 or 9.2225%

Step-by-step explanation:

The expected portfolio return is a function of the weighted average of the individual stocks' returns that form up the portfolio. The expected return on the portfolio containing two stocks can be calculated as follows,

Portfolio Expected Return = wA * rA + wB * rB

Where,

• w represents the weight of stocks
• r represents the return from each stock

To calculate the weight of each stock in the portfolio, we first need to calculate the total investment in the portfolio.

Total Investment = 4740 + 3260 = 8000

Portfolio expected return = 4740/8000 * 8% + 3260/8000 * 11%

Portfolio expected return = 0.092225 or 9.2225%