Question 1187337: 7. You are considering investing in a portfolio consisting of 35% Scotiabank, 20% Lasco, 40% First Rock and 5% Cyboney. If the expected rate of return on stocks are 16%, 10%, 23% and 8%, respectively. What is the expected return on the portfolio?
Answer by ikleyn(52914)   (Show Source):
You can put this solution on YOUR website! .
You are considering investing in a portfolio consisting of 35% Scotiabank, 20% Lasco, 40% First Rock and 5% Cyboney.
If the expected rate of return on stocks are 16%, 10%, 23% and 8%, respectively, what is the expected return on the portfolio?
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Let the total invested amount be X dollars.
Then the partial invested amounts are 0.35X, 0.2X, 0.4X, and 0.05X.
They create the respective interests 0.16*0.35X, 0.1*0.2X, 0.23*0.4X, and 0.08*0.85X.
The total interest is
0.16*0.35X + 0.1*0.2X + 0.23*0.4X + 0.08*0.85X = (0.16*0.35 + 0.1*0.2 + 0.23*0.4 + 0.08*0.05)*X = 0.172*X.
THEREFORE, the expected return on the portfolio is 0.172*X.
The expected return rate is 0.172, or 17.2%.
Solved.
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