A portfolio is entirely invested into Buzz's Bauxite Boring Equity,which is expected to return 16%,and Zum's bonds,which are expected to return 8%.60% of the funds are invested in Buzz's and the rest in Zum's.What is the expected return on the portfolio?
A)6.4%
B)9.6%
C)12.8%
D)24.2%
E)Need additional information.

Question

Quizplus · Accepted Answer

To calculate the expected return on the portfolio, we need to find the weighted average of the returns of Buzz's and Zum's investments.

Let P be the portfolio and B be Buzz's equity and Z be Zum's bonds. Then:

P = 0.6B + 0.4Z

Expected return on B, RB = 16%
Expected return on Z, RZ = 8%

Weighted average return on the portfolio, RP:

RP = 0.6*RB + 0.4*RZ
   = 0.6*16% + 0.4*8%
   = 12.8%

Therefore, the expected return on the portfolio is 12.8%.

Hence, the correct answer is option C.

A Portfolio Is Entirely Invested into Buzz's Bauxite Boring Equity,which