You own a portfolio that is 30% invested in Stock X, 20% in Stock Y, and 50% in Stock Z. The expected returns on these three stocks are 11%, 17%, and 13%, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Portfolio expected return
Question
You own a portfolio that is 30% invested in Stock X, 20% in Stock Y, and 50% in Stock Z. The expected returns on these three stocks are 11%, 17%, and 13%, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Portfolio expected return
Solution
To calculate the expected return on the portfolio, you need to multiply the expected return of each stock by its weight in the portfolio and then sum up these values. Here's how to do it:
- Multiply the expected return of Stock X by its weight in the portfolio: 0.30 (30% as a decimal) * 11% = 0.033 or 3.3%
- Multiply the expected return of Stock Y by its weight in the portfolio: 0.20 * 17% = 0.034 or 3.4%
- Multiply the expected return of Stock Z by its weight in the portfolio: 0.50 * 13% = 0.065 or 6.5%
Now, add up these values to get the expected return on the portfolio:
3.3% + 3.4% + 6.5% = 13.2%
So, the expected return on the portfolio is 13.2%.
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