A portfolio allocated $17,600 in stock m with expected return of 10.10% and $29,400 in stock n with expected return of 13.70%. The expected return on the portfolio is 12.35%
Suppose a portfolio allocates fund in several stocks, then the expected return on the portfolio is a weighted average of the expected return on each stock.
Expected portfolio return = ∑ weight stock_i x expected return stock_i
Data from the given problem:
Stock m = $17,600
Stock n = $29,400
Total stock = $17,600 + $29,400 = $47,000
weight of stock m = 17,600 / 47,000 = 37.45%
weight of stock n = 29,400 / 47,000 = 62.55%
Therefore,
Expected portfolio return = 37.45% x 10.10% + 62.55% x 13.70 %
= 12.35%
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