Question

Use the following table:

Series	Average return
Large stocks		12.04	%
Small stocks		16.74
Long-term corporate bonds		6.37
Long-term government bonds		6.10
U.S. Treasury bills		3.97
Inflation		3.10

a. Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Portfolio Return             %

b. What was the return on a portfolio that was equally invested in small stocks and Treasury bills? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Portfolio Return             

Answer 1

a) Portfolio- Equal Investment in large company stock and long term corporate bonds

Hence, % Invested in Large Stock = 50% ; Return = 12.04%

% Invested in LT Corporate Bond = 50% ; Return = 6.37%

Hence, Portfolio Return = 50% x 12.04% + 50% x 6.37% = 9.435 %

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b) THe same way

Proportion of small stock in Portfolio is 50 % with return =16.74%

Proportion of Treasury Bill in Portfolio is 50% with return = 3.97%

Hence, Portfolio Return = 50% x 16.74% + 50% x 3.97% = 10.36%