Question

Mr. Polar Bear has owns the stocks listed below in his portfolio:

Stock	Number of Shares	Price	Expected Return
W	525	$43	10%
X	780	29	15
Y	435	94	11
Z	680	51	14

What is the expected return of Joe's portfolio?

Answer 1

Expected return of Joe's portfolio = 12.4239%

Calculation :-

Step 1 - Calculate Value of Portfolio :-

Stock W = 525 Shares @ $43 = $22575

Stock X = 780 Shares @ $29 = $22620

Stock Y = 435 Shares @ $94 = $40890

Stock Z = 680 Shares @ $51 = $34680

Total Value of Portfolio = $120765

Step 2 - Calculate Weights of each stock :-

Weight = Value of Stock / Total Value of Portfolio

Weight of Stock W = $22575 / $120765 = 18.69%

Weight of Stock X = $22620 / $120765 = 18.73%

Weight of Stock Y = $40890 /  $120765 = 33.86%

Weight of Stock Z = $34680 / $120765 = 28.72%

Step 3 - Calculate Expected Return of Portfolio :-

Expected Return of Portfolio = Weight of Stock x Expected Return

Expected Return of Stock W = 18.69 x 10% = 1.869%

Expected Return of Stock X = 18.73 x 15% = 2.8095%

Expected Return of Stock Y = 33.86 x 11% = 3.7246%

Expected Return of Stock Z = 28.72 x 14% = 4.0208%

Therefore;

Expected Return of Portfolio = 1.869% + 2.8095% + 3.7246% + 4.0208%

Expected Return of Portfolio = 12.4239%