Question

You are contemplating a $200,000 investment portfolio containing three different assets. You plan to invest $50,000, $90,000, and $60,000 in assets A, B, and C, respectively. A, B, and C have expected annual returns of 15%, 18%, and 6%, respectively. The expected return of this portfolio is ______%?  Round it to two decimal places.

Answer 1

Stock A Returns = 15%

Stock B Returns = 18%

Stock C Returns = 6%

Weight of Stocks = Individual Investment/ Total Portfolio Investment

Or, Weight of Stock A = $50,000/ $200,000 = 0.25

Weight of Stock B = $90000/$200000 = 0.45

Weight of Stock C = $60,000/ $200,000 = 0.3

Expected Return of Portfolio = Weight of Stock A* Stock A Return + Weight of Stock B * Stock B Return + Weight of Stock C * Stock C Return

Or, Expected Return of Portfolio = 15%*0.25 + 18%*0.45 + 6%*0.3

Expected Return of the Portfolio = 3.75% + 8.1% + 1.8% = 13.65%

Expected Return of the Portfolio is 13.65%