A portfolio expected return E(R_p)of 3 stocks with the quantities w₁ = .40,w₂ = .50,w₃ = .10,E(R₁)= .10,E(R₂)= .15,and E(R₃)= .02 is equal to 0.117.

Question

Quizplus · Accepted Answer

To calculate the expected return of a portfolio, we use the weighted average of the expected returns of each individual stock, where the weights are the quantities of each stock in the portfolio. E(R_p) = w₁ * E(R₁) + w₂ * E(R₂) + w₃ * E(R₃) = (.40 * .10) + (.50 * .15) + (.10 * .02) = .04 + .075 + .002 = .117 Therefore, the statement is true.

A Portfolio Expected Return E(Rp)of 3 Stocks with the Quantities

A Portfolio Expected Return E(R_p)of 3 Stocks with the Quantities