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A portfolio consists of 43% of Stock A, with an average return of 8%, and the...

A portfolio consists of 43% of Stock A, with an average return of 8%, and the remainder Stock B with an average return of 13%. What is the average return of this portfolio?

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Expert Solution

Return on portfolio is weighted average of the return of the constituents.

In portfolio, weight of stock A = 43%

So, weight of stock B = 1 - 43% = 57%

Portfolio Return = Weight of Stock1 * Rate of Return of Stock1 + Weight of Stock2 * Rate of Return of Stock2 + ....+ Weight of Stockn * Rate of Return of Stockn

Portfolio Return = 43% * 8% + 57% * 13% = 3.44% + 7.41% = 10.85%

jeff jeffy answered 2 years ago
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