Question

In: Economics

Nervous Norman holds 70% of his assets in cash, earning 0%, and 30% of his assets...

Nervous Norman holds 70% of his assets in cash, earning 0%, and 30% of his assets in an insured savings account, earning 2%. The expected return on his portfolio:

a) is 0%.
b) is 0.6%

c) is 2%.
d) is 1%.
e) cannot be determined without knowing what the dollar value of his assets is.

Solutions

Expert Solution

Answer- Correct option is 'b'

The expected return on his portfolio = (Assets * returns) + (Assets * returns)

                                                     = (P1 * R1) + (P2 * R2)

                                                     = (70 * 0) + (30 * 2)

                                                     = 0 +   60

                                                     = 60

Change in percentage   =   60 / 100

                                  = 0.6

The expected return on his portfolio is 0.6 %.

Rahul Sunny answered 8 months ago
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