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Homework answers / question archive / Your retirement portfolio comprises 200 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG)
Your retirement portfolio comprises 200 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $134 and that of AGG is $110. If you expect the return of SPY to be 10% in the next year and the return on AGG to be 8%, what is the expected return for your retirement portfolio?
Calculate market value of each Exchange Traded Fund:
Market value=Share price×Number of sharesMarket value=Share price×Number of shares
Market value=134×200=26,800Market value=134×200=26,800
The market value of S&P 500 ETF is $26,800
Market value=110×100=11,000Market value=110×100=11,000
The market value of iShares Barclays Aggregate Bond Fund ETF is $11,000
Calculate the expected return of the portfolio using the equation below:
¯er=∑wtrtwhere:¯er=expected returnw=portfolio weightr=returner¯=∑wtrtwhere:er¯=expected returnw=portfolio weightr=return
¯er=(26,80026,800+11,000×.10)+(11,00026,800+11,000×.08)=(.7090×.10)+(.2910×.08)=.0709+.0233=.0942er¯=(26,80026,800+11,000×.10)+(11,00026,800+11,000×.08)=(.7090×.10)+(.2910×.08)=.0709+.0233=.0942
The expected rate of return of the portfolio is 9.42%
