Question

You own a portfolio that has $2,200 invested in Stock A and $1,300 invested in Stock B. If the expected returns on these stocks are 11 percent and 17 percent, respectively, what is the expected return on the portfolio?

Answer 1

Answer:

The expected return on the portfolio is 13.2%

Explanation:

Expected return on portfolio is the weighted average return rate of all the investments in the portfolio.

Expected portfolio return = ( Expected Return of Stock A x Weightage of Stock A ) +  ( Expected Return of Stock B x Weightage of Stock B )

Expected portfolio return = ( 11% x $2,200 / ($2,200+$1,300) ) +  ( 17% x $1,300 / ($2,200+$1,300) )

Expected portfolio return = ( 11% x $2,200 / $3,500 ) +  ( 17% x $1,300 / $3,500 )

Expected portfolio return = 6.9% +  6.3% = 13.2%