You own a portfolio that has 1900 invested in Stock A and 31

You own a portfolio that has $1,900 invested in Stock A and $3,100 invested in Stock B. If the expected returns on these stocks are 12 percent and 14 percent, respectively, what is the expected return on the portfolio?(Do not round your intermediate calculations.)

Solution

Weight of A = 1900/(1900+3100) = 0.38

Weight of B = 1- Weight of A = 1-0.38 = 0.62

.

Expected return of portfolio = Return of A x Weight of A + Return of B x Weight of B

Expected return of portfolio = 12% x 0.38 + 14% x 0.62

Expected return of portfolio = 13.24%