Question

You own a portfolio that is 25 percent invested in Stock X, 35 percent in Stock Y, and 40 percent in Stock Z. The expected returns on these three stocks are 10 percent, 13 percent, and 18 percent, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Expected return on portfolio = 14.25%

Step-by-step explanation:

Given:

Investment in stock X = 25% of portfolio

Investment in stock Y = 35% of portfolio

Investment in stock Z = 40% of portfolio

Expected return in stock X = 10%

Expected return in stock Y = 13%

Expected return in stock Z = 18%

Find:

Expected return on the portfolio = ?

Computation:

Expected return on portfolio = (Investment in stock X × Expected return in stock X) + (Investment in stock Y × Expected return in stock Y) + (Investment in stock Z × Expected return in stock Z)

Expected return on portfolio = (10% × 25%)+(13% × 35%)+(18% × 40%)

Expected return on portfolio = 2.5% + 4.55% + 7.2%

Expected return on portfolio = 14.25%