Question

Your retirement portfolio comprises 100 shares of the Standard​ & Poor's 500 fund​ (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund​ (AGG). The price of SPY is $ 112 and that of AGG is $ 100 . If you expect the return on SPY to be 8 ​% in the next year and the return on AGG to be 3 ​%, what is the expected return for your retirement​ portfolio?

Answer 1

5.64% per annum

Step-by-step explanation:

INVESTMENTS PRICE VALUE($) WEIGHTS

100 shares of SPY $112 11200 11200/21200 = 0.53

100 shares of AGG $100 10000 10000/21200 = 0.47

Total Investment 21200

Return of a portfolio is the weighted average return of individual securities in a portfolio. It is expressed and calculated using following formula,

`R_(p) = R_(a) *\ W_(a) \ +\ R_(b) *\ W_(b)`

`R_(p)` = .08 × 0.53 + .03 × 0.47

`R_(p)` = .05636 or 5.64% p.a

Hence expected return for investment would be 5.64%

Expected return of a portfolio represents anticipated rate of return on similar stocks. Expected rate of return is the probable rate of return and is thus usually determined using the probability.