Consider the following portfolio of assets: $$\begin{array} { | c | c | c | c | c | c | } \hline \text { Loan } i & \text { Weight } i & \text { Expected return } i & \sigma & \sigma ^ { 2 } & \ \hline 1 & 0.45 & 15 \% & 6.05 \% & 36.60 \% & \mathrm { P } _ { 12 } = - 0.2 \ \hline 2 & 0.55 & 13 \% & 8.75 \% & 76.56 \% & \sigma _ { 12 } = - 4.0 \% \ \hline \end{array}$$ What is the expected return on the portfolio (round to two decimals)? A)(15% + 13%) / 2 = 14.00% B)(0.45)²(15%) + (0.7)²(13%) = 9.41% C)[(0.45)²(15%) + (0.7)²(13%)] * 2 = 18.82% D)0.45(15%) + 0.7(13%) = 15.85%

Question

Quizplus · Accepted Answer

The expected return on the portfolio is the weighted average of the expected returns of the individual assets, which is (0.45)(15%) + (0.55)(13%) = 15.85%. Therefore, option D is the correct choice. Option A is incorrect because it assumes equal weighting of the assets, which is not the case. Option B and C are incorrect because they involve the use of standard deviations (σ) and covariance (σ12), which are not necessary for calculating the expected return of the portfolio.

Consider the Following Portfolio of Assets What Is the Expected Return on the Portfolio (Round to |