Your investment portfolio contains 200 shares of RBC and 450 shares of Air Canada.The price of RBC is currently $92 per share,and the price of Air Canada is currently $11 per share.If you expect the return on RBC to be 6% in the next year,and the return on Air Canada to be 8%,what is the expected return for your portfolio?

Question

Quizplus · Accepted Answer

The expected return on the portfolio is the weighted average of the expected returns on the individual stocks. The weight of each stock is its value relative to the total value of the portfolio. The value of the RBC shares is 200 * $92 = $18,400. The value of the Air Canada shares is 450 * $11 = $4,950. The total value of the portfolio is $18,400 + $4,950 = $23,350. The weight of the RBC shares is $18,400/$23,350 = 0.79. The weight of the Air Canada shares is $4,950/$23,350 = 0.21. The expected return on the portfolio is 0.79 * 6% + 0.21 * 8% = 6.4%.

Your Investment Portfolio Contains 200 Shares of RBC and 450