Question

What is the expected return for the following portfolio?

Asset	Investment	Return
A	200	0.15
B	300	0.10
C	500	0.25

1. 0.1850
2. 0.1000
3. 0.1550
4. 0.1150
5. 0.1225

Please show how you got the answer!

Answer 1

Sol:

Investment is asset A = 200, Return (rA) = 0.15

Investment is asset B = 300, Return (rB) = 0.10

Investment is asset C = 500, Return (rC) = 0.25

Total investment = 200 + 300 + 500 = 1000

To determine expected return of the portfolio:

Expected return = (Investment is asset A / Total investment x rA) + (Investment is asset B / Total investment x rB) + (Investment is asset C / Total investment x rC)

Expected return = (200/1000 x 0.15) +(300/1000 x 0.10) + (500/1000 x 0.25)

Expected return = (0.20 x 0.15) +(0.30 x 0.10) + (0.50 x 0.25)

Expected return = 0.03 + 0.03 + 0.125

Expected return = 0.1850

Threfore answer is A. 0.1850