Question

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets.

E(Rp)= 12%
Standard deviation of P 7.20%
Tbill rate 3.60%
Proportion of complete portfolio in P 80%
Proportion of complete portfolio in T bills 20%
Composition of P
Stock A 40%
Stock B 25%
Stock C 35%
Total 100%
What is the expected return on Bo's complete portfolio?
A) 10.32%
B) 5.28%
C) 9.62%
D) 8.44%
E) 7.58%

Answer 1

A) 10.32%

Step-by-step explanation:

Calculation for the expected return on Bo’s complete portfolio

Using this formula

Expected return =(Proportion of complete portfolio in P×E(Rp))+Proportion of complete portfolio in T bills×Tbill rate)

Let plug in the formula

Expected return=(80%×12%) + (20%×3.60%)

Expected return=0.096+0.0072

Expected return=0.1032×100

Expected return=10.32%

Therefore the expected return on Bo’s complete portfolio will be 10.32%