You have invested 30 per cent of your portfolio in an investment with an expected return of 9 per cent and 70 per cent of your portfolio in an investment with an expected return of -1 per cent

Finance Nov 13, 2020

You have invested 30 per cent of your portfolio in an investment with an expected return of 9 per cent and 70 per cent of your portfolio in an investment with an expected return of -1 per cent. What is the expected return of your portfolio? (as a percentage to two decimal places; eg 2.881% is 2.88)) Select one: a. 2.00% b. 6.00% c. 8.30% d. 1.50%

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Solution

Answer A- 2.00%

Investment in Stock A(WA)=30%

Expected Return in Stock A (RA)=9%

Investment in Stock B(WB)=70%

Expected Return in Stock B (RB)=-1%

Return of Portfolio=Expected Return in Stock A (RA)*Weight (WA)+Expected Return in Stock RB)*Weight (WB)

=RA*WA+RB*WB

=9%*30%+(-1%)*70%

=2.70%-0.70

=2.00%

Hence Expected return from Portfolio is 2.00%

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