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24 March, 15:54

A portfolio consists of $18,200 in Stock M and $30,900 invested in Stock N. The expected return on these stocks is 10.40 percent and 14.30 percent, respectively. What is the expected return on the portfolio?

a. 13.58%

b. 11.85%

c. 12.85%

d. 10.86%

e. 12.35%

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Answers (1)
  1. 24 March, 17:42
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    The correct answer is option (C).

    Explanation:

    According to the scenario, the given data are as follows:

    Stock M = $18,200

    Expected Return on Stock M = 10.40%

    Stock N = $30,900

    Expected return on Stock N = 14.30%

    So, we can calculate the expected return on portfolio by using the following formula:

    Expected return = Respective return (Stock M) * Respective weights (stock M) + Respective return (Stock N) * Respective weights (stock N)

    Here, Total investment = ($18,200 + $30,900) = $49,100

    So, by putting the value

    Expected Return = (18200/49100 * 10.4) + (30900/49100 * 14.30)

    = 12.85% (Approx).

    Hence, the expected return on the portfolio is 12.85%.
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