Florida Company (FC)and Minnesota Company (MC)are both service companies. Their stock returns for the past three years were as follows: FC: -5 percent, 15 percent, 20 percent; MC: 8 percent, 8 percent, 20 percent. If FC and MC are combined into a portfolio with 50 percent of the funds invested in each stock, calculate the expected return on the portfolio.

Question

Quizplus · Accepted Answer

To calculate the expected return of the portfolio, we need to take the weighted average of the returns of each stock. 
For FC: (-5% * 0.5) + (15% * 0.5) + (20% * 0.5) = 15%
For MC: (8% * 0.5) + (8% * 0.5) + (20% * 0.5) = 12%
Therefore, the expected return of the portfolio is: (15% * 0.5) + (12% * 0.5) = 11%. So the correct answer is C) 11 percent.

Florida Company (FC)and Minnesota Company (MC)are Both Service Companies