Your broker mailed you your year-end statement.You have $25,000 invested in Dow Chemical,$18,000 tied up in GM,$36,000 in Microsoft stock,and $11,000 in Nike.The annualized returns for these stocks is 16.5% for Dow,12.0% for GM,18.5% for Microsoft,and 15.3% for Nike.What is the return of your entire portfolio?
A)15.60%
B)18.55%
C)16.25%
D)9.00%

Question

Quizplus · Accepted Answer

To calculate the return of the entire portfolio, we need to find the weighted average of the returns of each stock. 
Weighted average return = ((25,000/90,000) x 16.5%) + ((18,000/90,000) x 12.0%) + ((36,000/90,000) x 18.5%) + ((11,000/90,000) x 15.3%)
Weighted average return = 0.2778 x 0.165 + 0.2 x 0.12 + 0.4 x 0.185 + 0.1222 x 0.153
Weighted average return = 0.0459675
Annualized Portfolio return = 0.0459675 x 100 = 4.6%
Therefore, the return of the entire portfolio is 16.25%.

Your Broker Mailed You Your Year-End Statement