Question

You have the following information about your stock portfolio. You own 6 ,000 shares of Stock A which sells for $ 15 with an expected return of 8 %. You own 2,000 shares of Stock B which sells for $10 with an expected return of 6%. You own 4,000 shares of Stock C which sells for $12 with an expected return of 9%. You own 8 ,000 shares of Stock D which sells for $ 11 with an expected return of 16 %. What is the expected return on your portfolio

Answer 1

Portfolio return = 0.1089 or 10.89%

Step-by-step explanation:

The expected return on a portfolio is the weighted average of the individual stocks' returns that form up the portfolio. To calculate the expected return on the portfolio we use the following formula,

Portfolio return = wA * rA + wB * rB + ... + wN * rN

Where,

• w is the weight of each stock in the portfolio
• r is the return of each stock

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

Stock A = 6000 * 15 = 90000

Stock B = 2000 * 10 = 20000

Stock C = 4000 * 12 = 48000

Stock D = 8000 * 11 = 88000

Total investment in portfolio = 90000+ 20000 + 48000 + 88000 = 246000

Portfolio return = 90000/246000 * 0.08 + 20000/246000 * 0.06 +

48000/246000 * 0.09 + 88000/246000 * 0.16

Portfolio return = 0.1089 or 10.89%