Question

You own a portfolio that has $4,300 invested in stocks and $7,000 invested in bonds. What is the expected return of the portfolio if stocks and bonds are expected to yield a return of 2% and 10%, respectively?

Answer 1

The expected return on the portfolio is 6.96%

Step-by-step explanation:

The formula to computing the expected return on the portfolio is given as :

(Amount invested in stocks/Total amount of investment)*expected yield on stocks +(Amount invested in bonds/Total amount of investment)* expected yield on bonds

Amount invested in stocks=$4300

Amount invested in bonds=$7000

Total amount of investment($4300+$7000)=$11,300

expected yields on stock =2%

expected yields on bonds=10%

Expected return on the portfolio=($4300/$11300)*2%+($7000/$11300)*10%

Expected return on the portfolio=0.069557522

Approximately 6.96%

Answer 2

6.956%

Step-by-step explanation:

The expected return, in dollars, is given by the sum of the amount invested multiplied by the rate of returns for both stocks and bonds:

`R = \$4,300*0.020+\$7,000*0.10\\R=\$786`

The rate of return is:

`r = (\$786)/(\$4,300+\$7,000)\\r=0.06956\\r= 6.956\%`

The portfolio is expected to yield a return of 6.956%.