Question

In: Finance

If you have $8,000 invested in each of two stocks whose expected rates of return are...

If you have $8,000 invested in each of two stocks whose expected rates of return are 9% and 11% respectively, $15,000 invested in a stock whose expected return is 10%, $20,000 invested in a stock whose return is 12%, and $10,000 invested in a stock whose return is 14%, what is the expected return on your portfolio?

Solutions

Expert Solution

The return of a portfolio is the weighted average return of the securities which constitute the porfolio

Stock Investment Weight Expected Return (%) Weight*Expected Return
1                         8,000 0.13(8000/61000) 9 1.18
2                         8,000 0.13(8000/61000) 11 1.44
3                       15,000 0.25(15000/61000) 10 2.46
4                       20,000 0.33(20000/61000) 12 3.93
5                       10,000 0.16(10000/61000) 14 2.30

Total investment = 8000+8000+15000+2000+10000

= 61000

Portfolio Return = Weight*Expected Return

= 1.18+1.44+2.46+3.93+2.30

= 11.31%


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