Question

You have a portfolio made up of 4 stocks. Stock W, with a weight of 10%, has an expected return of 12%. Stock X, with a weight of 20%, has an expected return of 19%. Stocks Y and Z each have weights of 35% and expected returns of 4% and 12% respectively. What is the expected return of your portfolio?

Write the expected return in percent form, round to two decimal places.

Answer 1

Weight of Stock W = Ww = 10%

Weight of Stock X = Wx = 20%

Weight of Stock Y = Wy = 35%

Weight of Stock Z = Wz = 35%

Expected return of Stock W = rw = 12%

Expected return of Stock X = rx = 19%

Expected return of Stock Y = ry = 4%

Expected return of Stock Z = rz = 12%

Expected Return of your portfolio = [Ww * rw] + [Wx * rx] + [Wy * ry] + [Wz * rz]

= [10% * 12%] + [20% * 19%] + [35% * 4%] + [35% * 12%]

= 1.2% + 3.8% + 1.4% + 4.2%

= 10.6%

Therefore, Expected return of your portfolio is 10.6%