Portfolio Return At the beginning of the month,you owned $6,000 of Company G,$8,000 of Company S,and $1,000 of Company N.The monthly returns for Company G,Company S,and Company N were 7.25 percent,-1.50 percent,and -0.23 percent.What is your portfolio return?
A)1.84 percent
B)2.08 percent
C)3.71 percent
D)5.52 percent

Question

Quizplus · Accepted Answer

To calculate the portfolio return, we need to find the weighted average return of each company.

Weighted Return of Company G: 
Investment in Company G/Total Investment = $6,000/($6,000+$8,000+$1,000) = 0.4286 
Weighted Return of Company G = 0.4286 x 7.25% = 3.11%

Weighted Return of Company S: 
Investment in Company S/Total Investment = $8,000/($6,000+$8,000+$1,000) = 0.5714 
Weighted Return of Company S = 0.5714 x (-1.50%) = -0.86%

Weighted Return of Company N: 
Investment in Company N/Total Investment = $1,000/($6,000+$8,000+$1,000) = 0.0714 
Weighted Return of Company N = 0.0714 x (-0.23%) = -0.02%

Portfolio Return = Weighted Return of Company G + Weighted Return of Company S + Weighted Return of Company N 
Portfolio Return = 3.11% + (-0.86%) + (-0.02%) = 2.23%

Therefore, the portfolio return is 2.23%, which is closest to choice B (2.08%).

Portfolio Return at the Beginning of the Month,you Owned $6,000