Answer:
Portfolio return = 0.09667 or 9.667% rounded off to 9.67%
Step-by-step explanation:
To calculate the expected rate of return of a stock portfolio, we take the weighted average of the expected return for each stock. The formula to calculate the expected return of portfolio is,
Portfolio return = wA * rA + wB * rB + ... + wN * rN
Where,
- w represents the weight of each stock
- r represents the return of each stock
As we have 3 stocks with equal investment in each stock, we can say the weight of each stock is 1/3.
Portfolio return = 1/3 * 0.07 + 1/3 * 0.1 + 1/3 * 0.12
Portfolio return = 0.09667 or 9.667% rounded off to 9.67%