Question

A portfolio has $4700 invested in BAC, $4800; NKO and $4104 in WMT. BAC has an expected return of 17% and KO has an expected return of 3%, and WMT has an expected return of 4%. what is the portfolio's expected return?

Answer 1

Total portfolio value = $ 4,700 + $ 4,800 + $ 4,104 = $ 13,604

Portfolio return = W_BAC x R _BAC + W_NKO x R_NKO + W_WMT x _WMT                        

W_BAC = Weight of security BAC = $ 4,700/ $ 13,604 = 0.34548662158

R_BAC = Return of security BAC = 0.17

W_NKO = Weight of security NKO = $ 4,800/ $ 13,604 = 0.35283740076

R_NKO = Return of security NKO = 0.03

W_WMT = Weight of security WMT = $ 4,104/$ 13,604 = 0.30167597765

R_WMT = Return of security WMT = 0.04

Portfolio return = 0.34548662158 x 0.17 + 0.35283740076 x 0.03 + 0.30167597765 x 0.04

                            = 0.0587327256689209 + 0.0105851220229344 + 0.0120670391061453

                             = 0.0813848867980006 or 8.14 %

Expected return of portfolio is 8.14 %