Suppose you own a portfolio that has 500 shares of SHC Company and 1,000 shares of MHC Company.The stock prices of SHC and MHC at the time of purchase were $40 and $25 per share,respectively.Given the following forecasts,what is the expected return for the portfolio?

A) 7.61%
B) 7.89%
C) 11.94%
D) 12.56%

Question

Suppose you own a portfolio that has 500 shares of SHC Company and 1,000 shares of MHC Company.The stock prices of SHC and MHC at the time of purchase were $40 and $25 per share,respectively.Given the following forecasts,what is the expected return for the portfolio?
  
A) 7.61% 
B) 7.89% 
C) 11.94% 
D) 12.56%

Quizplus · Accepted Answer

E(R_SHC)= 30%*10% + 15%*60% + (-10%)*30% = 9% E(R_MHC)= 20%*10% + 10%*60% + (-5%)*30% = 6.5% w_SHC= ($40*500)/$40*500+$25*100 = $20,000/$45,000 = 0.4444 W_MHC = 1-0.4444 = 0.5556 E(R_P)= 9%*0.4444+6.5%*0.5556 = 7.61%

Suppose You Own a Portfolio That Has 500 Shares of SHC