Question

What is the expected return to a portfolio that is composed of a variety of financial assets?

Answer 1

The expected return of a portfolio is computed as the weighted average expected returns of the assets in the portfolio. For this, one needs to know the expected return of each asset and the weight it holds in the portfolio. This can be explained with the help of an example.

A Portfolio comprises 2 assets X and Y. Asset X holds a weight of 60% and gives a return of $3000 while asset B gives a return of $5000. The expected return of the portfolio = 3000*60% + 5000*(100%-60%) = 1800+2000 = $3800