What is the expected return on a portfolio comprised of €3,000 in share K and €5,000 in share L if the economy is normal?
$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$Returns if
$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$State Occurs
$\begin{array}{|l|l|l|l|}
\hline \text { State of Economy } & \text { Probability of State of Economy } & \text { ShareK } & \text { Share L } \
\hline \text { Boom } & 20 \% & 14 \% & 10 \% \
\hline \text { Normal } & 30 \% & 5 \% & 6 \% \
\hline
\end{array}$
A)3.75%
B)5.25%
C)5.63%
D)5.88%
E)6.80%

Question

Quizplus · Accepted Answer

The expected return is calculated by finding the weighted average of the returns of the shares in the portfolio. The weights are based on the amount invested in each share. For share K: (€3,000/€8,000) * 5% = 1.875%. For share L: (€5,000/€8,000) * 6% = 3.75%. Adding these gives 1.875% + 3.75% = 5.625%, which is approximately 5.63%.

What Is the Expected Return on a Portfolio Comprised of €3,000