Stock A has an expected return of 15%,and stock B has an expected return of 6%.However,the risk of stock A as measured by its variance is 3 times that of stock B.If the two stocks are combined equally in a portfolio,what would be the portfolio's expected return?
A)4.25%
B)10.5%
C)20%
D)Greater than 20%
E)Need more information to answer.

Question

Quizplus · Accepted Answer

The portfolio's expected return can be calculated as the weighted average of the expected returns of the two stocks. Since the stocks are combined equally, the weight of each stock is 0.5. Therefore, the portfolio's expected return is:
Expected return = 0.5 x 15% + 0.5 x 6% = 10.5%
Thus, the best choice is B.

Stock a Has an Expected Return of 15%,and Stock B