YOU OWN A PORTGOLIO THAT HAS $2790 INVESTED IN STOCK A AND $3700 INVESTED IN STOCK B. IF THE EXPECTED RETURNS ON THESE STOCKS ARE 11 AND 15 PERCENT, RESPECTIVELY, WHAT IS THE EXPECTED RETURN ON THE PORTFOLIO?
The Expected Return on a Portfolio is computed as the weighted average of the expected returns on the stocks which comprise the portfolio. The weights reflect the proportion of the portfolio invested in the stocks. This can be expressed as follows: e(r)=summation pi*ri $2790 INVESTED IN STOCK A AND $3700 INVESTED IN STOCK B p(a)=2790/6490=.429 p(B)=3700/6490=.570 e(r)=.429*.11+.570*.15=.13269=13.27%
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