For example, if you have a portfolio that is made up of 50% stocks and 50% bonds, and the expected return on stocks is 10%, and the expected return on bonds is 5%, then your expected return would be calculated as:
Question
For example, if you have a portfolio that is made up of 50% stocks and 50% bonds, and the expected return on stocks is 10%, and the expected return on bonds is 5%, then your expected return would be calculated as:
Solution
To calculate the expected return of a portfolio made up of different assets, you need to multiply the expected return of each asset by its weight in the portfolio and then sum up these values. Here's how you can do it step by step:
-
Determine the weight of each asset in the portfolio: In this case, the portfolio is made up of 50% stocks and 50% bonds.
-
Determine the expected return of each asset: The expected return on stocks is 10%, and the expected return on bonds is 5%.
-
Multiply the weight of each asset by its expected return: For stocks, this would be 0.50 (the weight of stocks in the portfolio) * 0.10 (the expected return on stocks) = 0.05 or 5%. For bonds, this would be 0.50 (the weight of bonds in the portfolio) * 0.05 (the expected return on bonds) = 0.025 or 2.5%.
-
Sum up these values: 0.05 (the weighted return from stocks) + 0.025 (the weighted return from bonds) = 0.075 or 7.5%.
So, the expected return of the portfolio would be 7.5%.
Similar Questions
The return on a portfolio is a combination of the expected returns on the assets in the portfolio.
You own a portfolio that is 30% invested in Stock X, 20% in Stock Y, and 50% in Stock Z. The expected returns on these three stocks are 11%, 17%, and 13%, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Portfolio expected return
An investor has the following portfolio set out below. What is the expected return on the portfolio? Record your answer to the nearest four decimal places (e.g., If your answer is 3.40%, then report 0.0340). Company Return Beta $ invested TTYL Ltd 0.217 2.1 39,000 FML Ltd 0.042 0.35 28,000 IDK Ltd 0.088 0.57 19,000 Government Bonds 0.022 36,000
There are two ways to calculate the expected return of a portfolio. Either calculate the expected return using the value and dividend stream of the portfolio as a whole, or calculate the weighted average of the expected returns of the individual shares that make up the portfolio. Which return is higher? (Select the best choice below.) A. Neither-both calculations give the same answer. B. The weighted average expected return of the individual shares is higher because returns are concave. C. The weighted average expected return of the individual shares is higher because returns are convex. D. Impossible to tell, it depends on the portfolio.
is the probability of getting return. It is measured in terms of deviation between actual return and expected return.*PortfolioInvestmentReturnDerivativeRisk
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.