You decide to form a portfolio of the following amounts invested in the following stocks. What is the expected return of the portfolio?

Stock Amount Beta Expected Return

Apple $1,000 2.40 10.50%

Microsoft $7,000 0.73 16.90%

Ford $6,000 1.95 15.75%

Time Warner $6,000 1.27 11.80%

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agustinsr99 agustinsr99 · Answer 1 · 2019-10-19T16:48:32+02:00

Answer: Expected return of the portfolio = 14,70%

Explanation: First we must add the amounts to calculate the total capital:

1000 + 7000 + 6000 + 6000 = $20000

The performance of a portfolio is given by the sum of each individual expected return weighted by its weight in capital.

Therefore we must calculate the weight (w) of each type of action:

W (apple) = 1000 / 20000 = 0,05

W (microsoft) = 7000 / 20000 = 0,35

W (ford) = 6000 / 20000 = 0,30

W (time warner) = 6000 / 20000 = 0,30

Expected return of the portfolio : (0,1050 . 0,05) + (0,1690 . 0,35) + (0,1575 . 0,30) + (0,1180 . 0,30) = 0,14705 = 14,70%

Tundexi Tundexi · Answer 2 · 2022-03-03T12:05:51+01:00

The expected return of the portfolio is 14.70%.

Total stock amount = $1000 + $7000 + $6000 + $6000

Total stock amount = $20000

Note: The performance of a portfolio is given by the sum of each individual expected return weighted by its weight in capital.

Weight of each section = Stock amount / Total stock amount

Weight (apple) = 1000 / 20000

Weight (apple) = 0,05

Weight (microsoft) = 7000 / 20000

Weight (microsoft) = 0,35

Weight (ford) = 6000 / 20000

Weight (ford) = 0,30

Weight (time warner) = 6000 / 20000

Weight (time warner) = 0,30

Expected return of the portfolio = (0.1050 * 0.05) + (0.1690 * 0.35) + (0.1575 * 0.30) + (0.1180 * 0.30)

Expected return of the portfolio = 0.14705

Expected return of the portfolio = 14.70%

In conclusion, the expected return of the portfolio is 14.70%