Melissa owns the following portfolio of stocks.What is the return on her portfolio?

A) 8.0%
B) 9.0%
C) 9.8%
D) 10.9%

Question

Melissa owns the following portfolio of stocks.What is the return on her portfolio?

A) 8.0% 
B) 9.0% 
C) 9.8% 
D) 10.9%

Quizplus · Accepted Answer

To calculate the return on a portfolio, we need to take a weighted average of the returns of each stock, where the weights are the proportion of the portfolio invested in each stock.

Melissa's portfolio has the following values:

- 100 shares of Stock A, which has a return of 6%
- 200 shares of Stock B, which has a return of 10%
- 300 shares of Stock C, which has a return of 12%
- 400 shares of Stock D, which has a return of 8%

To calculate the weighted average return, we first need to calculate the total value of the portfolio:

100 x $50 (price of Stock A) = $5,000
200 x $25 (price of Stock B) = $5,000
300 x $20 (price of Stock C) = $6,000
400 x $10 (price of Stock D) = $4,000

Total portfolio value = $20,000

Now we can calculate the weights:

- Stock A: $5,000/$20,000 = 0.25
- Stock B: $5,000/$20,000 = 0.25
- Stock C: $6,000/$20,000 = 0.30
- Stock D: $4,000/$20,000 = 0.20

Finally, we can calculate the weighted average return:

(0.25 x 6%) + (0.25 x 10%) + (0.30 x 12%) + (0.20 x 8%) = 1.5% + 2.5% + 3.6% + 1.6% = 9.2%

Therefore, the return on Melissa's portfolio is 9.2%, which is closest to choice C (9.8%).

Melissa Owns the Following Portfolio of Stocks