Question

You own a portfolio that is 34 percent invested in Stock X, 49 percent in Stock Y, and 17 percent in Stock Z. The expected returns on these three stocks are 8 percent, 11 percent, and 13 percent, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Portfolio return = 0.1032 or 10.32%

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 contained in the portfolio. 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 in the portfolio

• r represents the return of each stock

Portfolio return = 0.34 * 0.08 + 0.49 * 0.11 + 0.17 * 0.13

Portfolio return = 0.1032 or 10.32%