What is the expected return on a portfolio that is invested 40% in stock A and 60% in stock B, given the following information?
A) 5.40%
B) 5.70%
C) 6.40%
D) 7.80%
E) 8.10%

Question

What is the expected return on a portfolio that is invested 40% in stock A and 60% in stock B, given the following information? 
A) 5.40% 
B) 5.70% 
C) 6.40% 
D) 7.80% 
E) 8.10%

Quizplus · Accepted Answer

The expected return on the portfolio can be calculated using the weighted average of the expected returns on each stock, where the weights are the proportions of the portfolio invested in each stock.

Expected return on stock A = 0.40 x 18% = 7.20%
Expected return on stock B = 0.60 x 4.5% = 2.70%

Expected return on portfolio = (0.40 x 18%) + (0.60 x 4.5%) = 5.70%

Therefore, the best choice is B, with an expected return on the portfolio of 5.70%.

What Is the Expected Return on a Portfolio That Is