Question

A portfolio consists of assets with the following expected returns:

Technology stocks 26 %

Pharmaceutical stocks 17%

Utility stocks 10%

Savings account 5%

What is the expected return on the portfolio if the investor spends an equal amount on each asset? Round your answer to two decimal places.

What is the expected return on the portfolio if the investor puts 52 percent of available funds in technology stocks, 15 percent in pharmaceutical stocks, 15 percent in utility stocks, and 18 percent in the savings account? Round your answer to two decimal places.

Answer 1

The Expected Return on the portfolio if the investor spends an equal amount on each asset

Expected Return = Sum(Returns x Proportion of the amount Invested)

= (26% x ¼) + (17% x ¼) + (10% x ¼) + (5% x ¼)

= 6.50% + 4.25% + 2.50% + 1.25%

= 14.50%

The Expected Return on the portfolio if the investor puts 52 percent of available funds in technology stocks, 15 percent in pharmaceutical stocks, 15 percent in utility stocks, and 18 percent in the savings account

Expected Return = Sum(Returns x Proportion of the amount Invested)

= (26% x 0.52) + (17% x 0.15) + (10% x 0.15) + (5% x 0.18)

= 13.52% + 2.55% + 1.50% + 0.90

= 18.47%