What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return

A) 18.45%
B) 12.82%
C) 13.38%
D) 15.27%
E) 16.67%

Question

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return

A) 18.45% 
B) 12.82% 
C) 13.38% 
D) 15.27% 
E) 16.67%

Quizplus · Accepted Answer

To calculate the expected return of the portfolio, we need to take a weighted average of the expected returns of the individual stocks. Using the market values provided, we get:

Weighted average expected return = (0.4*0.1) + (0.3*0.12) + (0.3*0.16) = 0.04 + 0.036 + 0.048 = 0.124 or 12.4%

Therefore, the correct answer is 13.38% (option C) which is not listed as one of the options. We should choose the closest option, which is B) 12.82%.

What Is the Expected Return of the Three Stock Portfolio