Stock A has an expected return of 10% per year and stock B has an expected return of
20%) If 40% of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?
A) 10%
B) 20%
C) 16%
D) None of the above

Question

Quizplus · Accepted Answer

The expected return on the portfolio can be calculated as follows:

Expected return on portfolio = Weight of stock A * Expected return on stock A + Weight of stock B * Expected return on stock B
= (0.4 * 10%) + (0.6 * 20%)
= 4% + 12%
= 16%

Therefore, the expected return on the portfolio of stock A and stock B is 16%. Option C is correct.

Stock a Has an Expected Return of 10% Per Year