Question

You have ​$67000. You put 25​% of your money in a stock with an expected return of 12 ​%, ​$36000 in a stock with an expected return of ​17%, and the rest in a stock with an expected return of 19​%. What is the expected return of your​ portfolio? The expected return of your portfolio is __​%.

Answer 1

Given,

Total investment = $67000

Weight of Stock 1 = 25% or 0.25

Stock 1 return = 12%

Stock 2 investment = $36000

Stock 2 return = 17%

Stock 3 return = 19%

Solution :-

Weight of stock 2 = $36000/$67000 = 0.5373134328

Weight of stock 3 = 1 - weight of stock 1 - weight of stock 2

= 1 - 0.25 - 0.5373134328 = 0.2126865672

Now,

Expected return of portfolio

= (Stock 1 return x weight of stock 1) + (stock 2 return x weight of stock 2) + (Stock 3 return x weight of stock 3)

= (12% x 0.25) + (17% x 0.5373134328) + (19% x 0.2126865672)

= 3% + 9.1343283576% + 4.0410447768%

= 16.18%

The expected return of your portfolio is 16.18%