What is the expected return on a portfolio that is equally-weighted amongst A, B, and the risk-free asset? The return on the risk-free asset is 4%.
A) 8.9%
B) 9.3%
C) 10.1%
D) 11.8%
E) 13.8%

Question

Quizplus · Accepted Answer

We need to first find the expected return for the portfolio. Since the portfolio is equally-weighted amongst A, B, and the risk-free asset, each asset will make up one-third of the portfolio.

Expected return on portfolio = (1/3 x expected return on A) + (1/3 x expected return on B) + (1/3 x risk-free rate)
= (1/3 x 10%) + (1/3 x 9%) + (1/3 x 4%)
= 7.67%

Therefore, the expected return on the portfolio is 7.67%, which is closest to answer choice B (9.3%).

What Is the Expected Return on a Portfolio That Is