An investor invests $4,000 to buy 200 shares of Sand Corporation, which has an expected return of 24%; $2,000 to buy 100 shares of Water Corporation, with an expected return of 18%;
And $4,000 to buy 400 shares in Beach Corporation, with an expected return of 28%. What is
The expected return on this portfolio?

Question

Quizplus · Accepted Answer

The expected return on the portfolio is calculated by taking the weighted average of the expected returns of the individual investments, weighted by the amount invested in each. For Sand Corporation, the investment is $4,000 with an expected return of 24%. For Water Corporation, it's $2,000 with an expected return of 18%. For Beach Corporation, the investment is $4,000 with an expected return of 28%. The total investment is $10,000. The expected return on the portfolio is calculated as follows: (4000/10000)*24% + (2000/10000)*18% + (4000/10000)*28% = 0.24*24% + 0.2*18% + 0.4*28% = 5.76% + 3.6% + 11.2% = 20.56%. However, this calculation seems to have been misunderstood in the setup. Correctly calculating, the expected return should be: [(4000 * 24%) + (2000 * 18%) + (4000 * 28%)] / 10000 = (960 + 360 + 1120) / 10000 = 2440 / 10000 = 24.4%.

An Investor Invests $4,000 to Buy 200 Shares of Sand