Nervous Norman holds 70% of his assets in cash, earning 0%, and 30% of his assets in an insured savings account, earning 2%. The expected return on his portfolio:
A) is 0%.
B) is 0.6%
C) is 1%.
D) is 2%.
E) cannot be determined without knowing what the dollar value of his assets is.

Question

Quizplus · Accepted Answer

The expected return on his portfolio is calculated by multiplying the percentage of the total assets held in each investment by the return of that investment and then summing these products. For Norman's portfolio: (70% * 0%) + (30% * 2%) = 0% + 0.6% = 0.6%.

Nervous Norman Holds 70% of His Assets in Cash, Earning