You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in S

Question

You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B. Assume the expected returns on these stocks are 10 percent and 16 percent, respectively.

What is the expected return on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B. Assume the expected returns on these stocks are 10 percent and 16 percent, respectively.

Explanation / Answer

The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset.

The total value of the portfolio is:

Total value = $1,500 + $ 2,600 = $4,100

So, the expected return of this portfolio is: E(Rp)

= ($1,500/$4,100)(0.10) + ($2,600/$4,100)(0.16)

= 0.036+0.101

=0.1374=13.74 percent

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