Question 2

You own a portfolio that has $4,450 invested in Stock A and $9,680 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 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.)

Portfolio expected return 10.06 %

Explanation

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset. The total value of the portfolio is:

Total portfolio value = $4,450 + 9,680

Total portfolio value = $14,130

So, the expected return of this portfolio is:

E(RP) = ($4,450/$14,130)(.08) + ($9,680/$14,130)(.11)

E(RP) = .1006, or 10.06%