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You own a portfolio that has $3,100 invested in Stock A and $4,200 invested in Stock B. Assume the expected returns on these stocks are 11 percent and 17 percent, respectively. Required: What is the expected return on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

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Shahzaibfaraz

Answer:

The expected return on portfolio is 14.45%

Explanation:

The expected return on portfolio is the weighted average return of the stocks that form up the portfolio. Thus, the weighted average return can be calculated by multiplying the weights of each stock in the portfolio by their expected return. The formula for portfolio return for a two stock can be written as,

Portfolio return = wA * rA + wB * rB

Where,

  • w represents the weight of investment in each stock in portfolio as a proportion of total investment in the portfolio
  • r represents the rate of return

Total investment in portfolio = 3100 + 4200 = $7300

Portfolio return = 3100/7300 * 0.11   +   4200/7300 * 0.17

Portfolio return = 0.1445 pr 14.45%

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