Question

A portfolio consists of three assets with the below proportions and returns. What is the expected return on the portfolio?

Asset A is 20% of the portfolio and is expected to return 12.5%

Asset B is 45% of the portfolio and is expected to return 14%

Asset C is 35% of the portfolio and is expected to return 15%

Answer 1

Answer:

Weight of Asset A = 0.20
Weight of Asset B = 0.45
Weight of Asset C = 0.35

Expected Return on Asset A = 12.50%
Expected Return on Asset B = 14.00%
Expected Return on Asset C = 15.00%

Expected Return on Portfolio = (Weight of Asset A * Expected Return on Asset A) + (Weight of Asset B * Expected Return on Asset B) + (Weight of Asset C * Expected Return on Asset C)
Expected Return on Portfolio = (0.20 * 12.50%) + (0.45 * 14.00%) + (0.35 * 15.00%)
Expected Return on Portfolio = 2.50% + 6.30% + 5.25%
Expected Return on Portfolio = 14.05%