Instruction 16.2:Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 16.2. What is the expected return of the proposed portfolio?
A)9.2%
B)9.0%
C)19.2%
D)19%

Question

Quizplus · Accepted Answer

To calculate the expected return of the portfolio, we need to apply the formula:
Expected return of portfolio = Weight of security A x Expected return of security A + Weight of security B x Expected return of security B
So, plugging in the given values, we get:
Expected return of portfolio = (0.6 x 10%) + (0.4 x 8%)
Expected return of portfolio = 6% + 3.2%
Expected return of portfolio = 9.2%