In: Finance
Given the year end prices of the following stocks, estimate the expected return of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.
Year | AAA | BBB |
---|---|---|
2006 | 100 | 55 |
2007 | 105 | 65 |
2008 | 120 | 60 |
2009 | 110 | 70 |
2010 | 130 | 65 |
2011 | 160 | 80 |
First we will Calculate Return of AAA and BBB by following
formula
rate of return = (closing price -opening price)/Opening
price
First year 2007 Return = (105-100)/105 = 5%
year AAA BBB
2007 5.0000% 18.1818%
2008 14.2857% -7.6923%
2009 -8.3333% 16.6667%
2010 18.1818% -7.1429%
2011 23.0769% 23.0769%
Total 52.2111% 43.0902%
ER= 10.4422% 8.6180%
Expected return = total /number of years
Weight of AAA= 30% W
of BBB =70%
Expected return of portfolio = (Expected return of A * Weight A) +
( Expected Return of B * weight B)
(10.4422%*30%)+(8.6180%*70%)
9.17%
So Expected Return of Portfolio is 9.17