If you invest 30% of your funds in AT&T stock with an expected rate of return of 10% and the remainder in GM stock with an expected rate of return of 15%, the expected return on your portfolio is
A)12.5%.
B)13.0%.
C)13.5%.
D)14.5%.
E)None of the above

Question

Quizplus · Accepted Answer

To calculate the expected return on the portfolio, we need to use weights of the two stocks:

Weight of AT&T = 30% = 0.3
Weight of GM = 70% = 0.7

Expected return on AT&T stock = 10%
Expected return on GM stock = 15%

Expected return on portfolio:
= (Weight of AT&T x Expected return on AT&T) + (Weight of GM x Expected return on GM)
= (0.3 x 10%) + (0.7 x 15%)
= 3% + 10.5%
= 13.5%

Therefore, the answer is C) 13.5%.

If You Invest 30% of Your Funds in AT&T Stock