Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s).
State of the Economy Probability of the States Percentage Returns
Economic recession 25% 5%
Moderate economic growth 55% 10%
Strong economic growth 20% 13%
-What is the expected rate of return on a portfolio Which consists of $9,000 invested in an S&P 500 Index fund,$32,500 in a technology fund,and $8,500 in Treasury Bills.The expected rate of return is 11% on the S&P Index fund,14% on the technology fund and 2% on the Treasury Bills.
A)$154.00
B)$142.80
C)$65.00
D)$15.12

Question

Quizplus · Accepted Answer

To calculate the expected rate of return on the portfolio, we need to multiply the percentage returns of each asset with their respective weights (amount invested/total portfolio value).

For the S&P 500 Index fund: 
Weight = $9,000/($9,000 + $32,500 + $8,500) = 0.18 
Expected return = 11% 
Contribution to portfolio return = 0.18 * 0.11 = 0.0198

For the technology fund: 
Weight = $32,500/($9,000 + $32,500 + $8,500) = 0.65 
Expected return = 14% 
Contribution to portfolio return = 0.65 * 0.14 = 0.091

For the Treasury Bills: 
Weight = $8,500/($9,000 + $32,500 + $8,500) = 0.17 
Expected return = 2% 
Contribution to portfolio return = 0.17 * 0.02 = 0.0034

Therefore, the expected rate of return on the portfolio is:
0.0198 + 0.091 + 0.0034 = 0.1142 or 11.42%

The best choice is B since it is the closest option to 11.42%. A is too high, C is too low, and D is too low and appears to be calculated incorrectly.

Use the Following Information,which Describes the Possible Outcomes from Investing