David is going to purchase two stocks to form the initial holdings in his portfo

Question

David is going to purchase two stocks to form the initial holdings in his portfolio. Iron stock has an expected return of 16 percent, while Copper stock has an expected return of 30 percent. If David plans to invest 30 percent of his funds in Iron and the remainder in Copper, then what will be the expected return from his portfolio? (Round answer to 1 decimal place, e.g. 17.5%.) Expected return % What would the expected return of David's portfolio be if he invested 70 percent of his funds in Iron stock? (Round answer to 1 decimal place, e.g. 17.5%.) Expected return %

Explanation / Answer

Portfolio Return = weighted average expected return of the individual stocks in the portfolio

Copper weight = 70%, Exp. Return = 30%

Iron weight = 30%, Exp. Return = 16%

Portfolio Exp. Return % = (16*0.3) + (30*0.7)

                                = 4.8 + 21

                                = 25.8%

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