Question

Stock A has an expected return of 8%; stock B has an expected return of 5%. What is the expected return on a portfolio is comprised of 50% of Stock A and 50% of Stock B?

• 5.2 %

• 7.8 %

• 6.5 %

• 6.5 %

Answer 1

The expected return on a portfolio = Percentage weight of stock A in portfolio * Expected return of stock A + Percentage weight of stock B in portfolio * Expected return of stock B

Where,

Percentage weight of stock A in portfolio = 50% or 0.50

Expected return of stock A = 8%

Percentage weight of stock B in portfolio = 50% or 0.50

Expected return of stock B = 5%

Therefore,

The expected return on a portfolio = 0.50 * 8% + 0.50 * 5%

= 4% + 2.5% = 6.5%

The expected return on a portfolio is 6.5%

Therefore correct answer is option: 6.5%