An individual has £10000 capital to invest in the stock market. He invests 30% of his capital in stock A, 25% in stock B and 45% in Stock C. What is the return on his/her portfolio assuming that the simple returns on stocks A, B and C are 5%, 10% and 12%, respectively?
A) 9.0%
B) 9.7%
C) 9.3%
D) 9%

Question

Quizplus · Accepted Answer

The return on the portfolio is the weighted average of the returns on the individual stocks. The weights are the proportions of the portfolio invested in each stock. In this case, the weights are 30%, 25%, and 45%. The returns are 5%, 10%, and 12%. So, the return on the portfolio is:(0.30 * 5%) + (0.25 * 10%) + (0.45 * 12%) = 9.0%

An Individual Has £10000 Capital to Invest in the Stock