Question

You have $62,000. You put 18% of your money in a stock with an expected return of 13%, $32,000 in stock with expected return of 15% and the rest in stock with an expected return of 18%. What is the expected return of your portfolio?

Answer 1

Amount invested in first stock = $62,000 * 0.18 = $11,160

Amount invested in second stock = $32,000

Amount invested in third stock = $62,000 - $11,160 - $32,000 = $18,840

Expected return of your​ portfolio = (Weight of first stock * Expected return of first stock) + (Weight of second stock * Expected return of second stock) + (Weight of third stock * Expected return of third stock)

Expected return of your​ portfolio = [($11,160/$62,000) * 0.13] + [($32,000/$62,000) * 0.15] + [($18,840/$62,000) * 0.18]

Expected return of your​ portfolio = 0.1555 or 15.55%