Asked by Sikanderdindyal@gmail.com Dindyal on May 01, 2024
Verified
The following information regarding a portfolio of two stocks are given: w1 = .65,w2 = .35,E(R1) = .12,and E(R2) = .14.Which of the following regarding the portfolio expected return,E(Rp) ,is correct?
A) .260
B) .127
C) .346
D) .374
Portfolio Expected Return
The weighted average of the expected returns of the assets in an investment portfolio.
Equal Investment
A strategy where equal amounts of capital are allocated to each investment within a portfolio.
Stocks
Shares of ownership in a company that represent a claim on part of the company's earnings and assets.
- Grasp the concept and calculation of the expected return of a portfolio.
Verified Answer
JO
Jenaye OneilMay 07, 2024
Final Answer :
B
Explanation :
To calculate the expected return of the portfolio, we use the weighted average formula:
E(Rp) = w1 * E(R1) + w2 * E(R2)
Substituting the given values, we get:
E(Rp) = 0.65 * 0.12 + 0.35 * 0.14
E(Rp) = 0.078 + 0.049
E(Rp) = 0.127
Therefore, the correct choice is B.
E(Rp) = w1 * E(R1) + w2 * E(R2)
Substituting the given values, we get:
E(Rp) = 0.65 * 0.12 + 0.35 * 0.14
E(Rp) = 0.078 + 0.049
E(Rp) = 0.127
Therefore, the correct choice is B.
Learning Objectives
- Grasp the concept and calculation of the expected return of a portfolio.