An investment advisor has recommended a $50,000 portfolio containing assets R, J, and K; $25,000 will be invested in asset R, with an expected annual return of 12 percent; $10,000 will be invested in asset J, with an expected annual return of 18 percent; and $15,000 will be invested in asset K, with an expected annual return of 8 percent. The expected annual return of this portfolio is
A) 12.67%.
B) 12.00%.
C) 10.00%.
D) unable to be determined from the information provided.

Question

Quizplus · Accepted Answer

To find the expected annual return of the portfolio, we need to take a weighted average of the expected returns of each asset, where the weights are the proportions of the portfolio invested in each asset:

Expected return of portfolio = (0.50 x 0.12) + (0.20 x 0.18) + (0.30 x 0.08) 
= 0.06 + 0.036 + 0.024 
= 0.12 or 12%

Therefore, the expected annual return of the portfolio is 12%. The answer is B.

An Investment Advisor Has Recommended a $50,000 Portfolio Containing Assets