You have invested 20 per cent of your portfolio in Homer, Ltd., 40 per cent in Marge Co., and 20 per cent in Bart Resources. What is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2 per cent, 18 per cent, and 3 per cent, respectively?
A) 7.7%
B) 8.2%
C) 8.7%
D) 9.2%

Question

Quizplus · Accepted Answer

To calculate the expected return of the portfolio, we need to use the weighted average formula as follows:

Expected return of portfolio = (weight of Homer x expected return of Homer) + (weight of Marge x expected return of Marge) + (weight of Bart x expected return of Bart)

Substituting the given values in the formula, we get:

Expected return of portfolio = (0.2 x 2%) + (0.4 x 18%) + (0.2 x 3%)
Expected return of portfolio = 0.4% + 7.2% + 0.6%
Expected return of portfolio = 8.2%

Therefore, the expected return of the portfolio is 8.2%. Option B is the correct answer.

You Have Invested 20 Per Cent of Your Portfolio in Homer