Question

The following are the expected returns on a portfolio of investments. What is the expected rate of return on the portfolio?

 

Investment # of shares Price per share Expected return

A. 2000 $20 10%

B. 3000 $10 15%

C. 1000 $15 8%

Answer 1

Investment	#of shares (A)	Price per share (B)		Expected return		A X B
A.	2000	$20		10%		$40,000		(2000*2=40,000)
B.	3000	$10		15%		$30,000		(3000*10=30,000)
C.	1000	$15		8%		$15,000		(1000*15=15,000)

Investment	Value	Return (A)	Weight (B)	A X B		Weights Calculation		Return
A	$40,000	10%	47%	4.71%		(40,000/85,000=47%)		(47%*10%=4.71%)
B	$30,000	15%	35%	5.29%		(30,000/85,000=35%)		(35%*15%=5.29%)
C	$15,000	8%	18%	1.41%		(15,000/85,000=18%)		(18%*8%=1.41%)
Total	$85,000	Expected PortfolioReturn		11.41%
						Expected Portforlio Return = (4.71%+5.29%+4.41%)=11.41%

Expected Portforlio Return = (4.71%+5.29%+4.41%)=11.41%