Question

What is the expected return of a $100,000 portfolio containing $25,000 worth of stocks from each of the 4 large companies with their current average yields of; IBM @ 5%, Amazon @ 6.5%, Boeing @ 8% and XYZ @ 10%?

a. 2.5%

b. 6.86%

c. 7.37%

d. 8.25%

e. 29.50%

Select one: a b c d e

Answer 1

The expected return is computed as shown below:

= Return on IBM x weight of IBM + Return on Amazon x weight of Amazon + Return on Boeing x weight of Boeing + Return on XYZ x weight of XYZ

= 0.05 x $ 25,000 / $ 100,000 + 0.065 x $ 25,000 / $ 100,000 + 0.08 x $ 25,000 / $ 100,000 + 0.10 x $ 25,000 / $ 100,000

= 0.0125 + 0.01625 + 0.02 + 0.025

= 7.37% Approximately

So, the correct answer is option c.

Feel free to ask in case of any query relating to this question