You have 90000 You put 15 of your money into a stock with an

You have $90,000. You put 15% of your money into a stock with an expected return of 12%, $30,000 into a stock with an expected return of 15% and the rest into a stock with an expected return of 20%. What is the expected return of your portfolio?

Solution

Expected Return of a portfolio is weighted return on the constiuents of the portfolio. Mathematically,

E[R] = W1 * R1 + W2 * R2 + .................. + Wn * Rn

For our question,

W1 = 15%, R1 = 12%.

W2 = 30000/90000 = 1/3, R2 = 15%

Amount invested in stock 3= 90000 - 30000 - 15% * 90000 = 46,500

W3 = (46,500/90000) = 465/900

R3 = 20%

E[R] = (15% * 12%) + (1/3 * 15%) + (465/900 * 20%) = 1.8% + 5% + 10.33% = 17.13% --> Answer