Ask Question
5 July, 21:35

Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return

+3
Answers (1)
  1. 6 July, 00:03
    0
    13.70%

    Explanation:

    The expected return of a portfolio is said to be the weighted average of the returns of the individual components,

    Given that:

    Stock A has an expected return = 17.8%

    Stock B has an expected return = 9.6%

    the risk of Stock A as measured by its variance is 3 times that of Stock B.

    If the two stocks are combined equally in a portfolio;

    Then:

    The weight of both stocks will be 50% : 50 %

    So the portfolio's expected return can be determined as follows:

    Expected return for stock A = 50% * 17.8%

    Expected return = 0.50 * 17.8%

    Expected return = 8.9 %

    Expected return for stock B = 50 % * 9.6 %

    Expected return for stock B = 0.50 * 9.6%

    Expected return for stock B = 4.8%

    Expected return of the portfolio = summation of the expected return for both stocks

    Expected return of the portfolio = 8.9 % + 4.8%

    Expected return of the portfolio = 13.70%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. However, the risk of Stock A as measured ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers