An investor invests $4,000 to buy 200 shares of Sand Corporation, which has an expected return of 24%; $2,000 to buy 100 shares of Water Corporation, with an expected return of 18%; and $4,000 to buy 400 shares in Beach Corporation, with an expected return of 28%. What is the expected return on this portfolio?

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DeniceSandidge DeniceSandidge · Answer 1 · 2019-10-21T13:37:38+02:00

Answer:

Expected return = 28%

Explanation:

given data

invests $4,000

share = 200

return = 24%

and

invests = $2000

share = 100

return = 18%

and

invest = $4,000

share = 400

return = 28%

to find out

expected return on this portfolio

solution

we know total investment is

Total investment = 4000+2000+4000

Total investment = 10000

and

Wt. of Sand Corporation shares in the total portfolio= [tex]\frac{4000}{10000}[/tex] = 0.4

Wt. of Water Corporation shares in the total portfolio=[tex]\frac{2000}{10000}[/tex] = 0.2

Wt. of Beach Corporation shares in the total portfolio=[tex]\frac{4000}{10000}[/tex] = 0.4

and

Expected return on the given portfolio is

Expected return = 0.4 × 24% + 0.4 × 18% + 0.4 × 28%

Expected return = 28%