Question

You own a portfolio that is 28 percent invested in Stock X, 25 percent in Stock Y, and 47 percent in Stock Z. The expected returns on these three stocks are 10 percent, 16 percent, and 12 percent, respectively. What is the expected return on the portfolio

Answer 1

12.44%

Step-by-step explanation:

The computation of the expected return on the portfolio is shown below:

Expected rate of return = (Return Of stock X × Weight of stock X) + (Return Of stock Y × Weight of stock Y) + (Return Of stock Z × Weight of stock Z)

= 0.28 × 0.10 + 0.25 × 0.16 + 0.47 × 0.12

= 0.028 + 0.04 + 0.0564

= 12.44%

We simply multiplied the rate of return with each of the stock so that the expected return on the portfolio is shown below: