Sally's broker told her that the expected return from her portfolio was 14.2%. If 40% of her securities have an expected return of 10.3 percent and 20% have an expected return of 12.8 percent, what is the expected return of the remaining portion of her portfolio?
A)20.9%
B)18.8%
C)12.5%
D)Cannot be determined

Question

Quizplus · Accepted Answer

Let x be the expected return of the remaining part of the portfolio. Then we have:
0.4(10.3%) + 0.2(12.8%) + 0.4x = 14.2%
4.12% + 2.56% + 0.4x = 14.2%
0.4x = 7.52%
x = 18.8%
Therefore, the expected return of the remaining part of the portfolio is 18.8%.

Sally's Broker Told Her That the Expected Return from Her