Question

You own a portfolio that has $1,500 invested in Stock A and $500 invested in Stock B. If the expected returns are 10% for Stock A and 14% for Stock B, what is the expected return on the portfolio?

Answer 1

Portfolio value= $1,500 + $500= $2,000

Weight of stock A= $1,500/ $2,000

                                 = 0.75*100

= 75%

Weight of stock B= $500/ $2,000

                                  = 0.25*100

                                  = 25%

Expected return of the portfolio= Weight in the portfolio*Expected return

                                                             = 0.75*10% + 0.25*14%

                                                             = 7.50% + 3.50%

                                                             = 11%.

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