You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.What is the expected rate of return on this portfolio?

A) 12.76 percent
B) 12.88 percent
C) 13.44 percent
D) 13.56 percent
E) 13.85 percent

Question

You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.What is the expected rate of return on this portfolio?

A) 12.76 percent 
B) 12.88 percent 
C) 13.44 percent 
D) 13.56 percent 
E) 13.85 percent

Quizplus · Accepted Answer

E(R-Boom) = 0.60(15%) + 0.40(9%) = 12.6%
E(R-Normal) = 0.60(8%) + 0.40(20%) = 12.8%
E(R-Portfolio) = (0.20)(12.6%) + (0.80)(12.8%) = 12.76%

You Have a Portfolio Which Is Comprised of 60 Percent