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13 July, 13:14

You own a portfolio that is invested 20 percent in stock A, 30 percent in stock B, and the remainder in stock C. The expected returns on these stocks are 3.7 percent, 14.5 percent, and 18.2 percent, respectively. What is the expected return on the portfolio?

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  1. 13 July, 13:39
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    The expected return on the portfolio is 14.19%.

    Explanation:

    This problem require us to calculate the expected return on entire portfolio. The expected return on every stock that will be the part of portfolio is given in the question and their weightage in portfolio is also provided in the problem.

    We can easily calculate the expected return using following weightage average formula.

    ER portfolio' = WA * ERA + WB * ERB + WC * ERC

    ' WA = Weightage of stock in portfolio

    ERA = Expected return on stock A

    = 20% * 3.7 + 30% * 14.5 + 50 * 18.2

    = 14.19%
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