You own a portfolio that has 1600 invested in Stock A and 38

You own a portfolio that has $1,600 invested in Stock A and $3,850 invested in Stock B. If the expected returns on these stocks are 12 percent and 15 percent, respectively, what is the expected return on the portfolio?

Solution

Stock A investment + Stock B investment = Portfolio value

Portfolio value = 1600 + 3850 = 5450

.

Expected return on portfolio = Return on A x Stock A investment/Portfolio value + Return on B x Stock B investment/Portfolio value

Expected return on portfolio = 12% x 1600/5450 + 15% x 3850/5450

Expected return on portfolio = 14.119266%

or

Expected return on portfolio = 14.12%