The expected return on your investment is closest to:
A)12%.
B)20%.
C)18%.
D)24%.

Question

Quizplus · Accepted Answer

The expected return on the investment is the weighted average of the returns on each asset, where the weights are the percentages of the total investment in each asset. Therefore, the expected return can be calculated as:
(0.4 x 10%) + (0.2 x 20%) + (0.4 x 30%) = 4% + 4% + 12% = 20%
However, since 10% return asset is risk-free, we should subtract the risk-free rate of return (10%) from the expected return to get the risk premium, which is the additional return earned for taking on risk. Therefore, the expected return on the investment would be 20% - 10% = 10%. However, option C is closest to 10%.

The Expected Return on Your Investment Is Closest To