You have a portfolio worth $101,000 that has an expected return of 11.8 percent. The portfolio...

You have a portfolio worth $101,000 that has an expected return of 11.8 percent. The portfolio has $18,400 invested in Stock O, $26,200 invested in Stock P, with the remainder in Stock Q. The expected return on Stock O is 16.1 percent and the expected return on Stock P is 13 percent. What is the expected return on Stock Q?

Expert Solution

Total portflio	$ 101,000

Portfolio composition
Stock O	$ 18,400
Stock P	$ 26,200
Stock Q	P

18400+26200+P=	101000
P=	101000-(18400+26200)
P=	$ 56,400

		Weight	Weight	Return	Weight * Return
Stock O	$ 18,400	=18400/101000	18.22%	16.10%	2.93%
Stock P	$ 26,200	=26200/101000	25.94%	13.00%	3.37%
Stock Q	$ 56,400	=56400/101000	55.84%	R	55.84%*R
Total	$ 101,000				6.31%+(55.84%*R)

6.31%+(55.84%*R)=	11.80%
(55.84%*R)=	11.80%-6.31%
(55.84%*R)=	5.49%
R (expected return)=	5.49%/55.84%
R (expected return)=	9.83%

jeff jeffy answered 2 years ago

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