Question

A portfolio contains 3 stocks with expected returns of 15%, 18% and 12%, with corresponding weights of 25%, 45% and 30%, respectively. What is the expected return of the portfolio?

A. 17.7%
B. 15.5%
C. 14.4%
D. 13.2%

Answer 1

The Correct answer is Option (B) 15.5%

Expected return of portfolio

=( R1*W1) + (R2*W2 )+ (R3*W3)

Here

R1= expected return of stock 1

R2= expected return of stock 2

R3= expected return of stock 3

W1= Weight of stock 1

W2= Weight of stock 2

W3= Weight of stock 3

Expected return of portfolio

= (15%*0.25)+(18%*0.45)+(12%*0.30)

Expected return of portfolio = 3.75+8.1+3.6

Expected return of portfolio= 15.45%

Expected return of portfolio= 15.5% (Rounded off to one decimal point)

Option (B) is correct answer