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You have invested 20 percent of your portfolio in Homer, Inc., 40 percent in Marge Co., and 20 percent in Bart Resources. What is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2 percent, 18 percent, and 3 percent, respectively?

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Kolawole845

Answer:

Expected return = 8.2%

Explanation:

A portfolio is a collection of assets/ investment. The return on a portfolio is the weighted average of all the return of the individual assets weighted according to the percentage of total funds allocated to each assets.

Expected return on portfolio:

E(R) =( Wa*Ra) + (Wb*Rb)  + (Wc*Rc) + Wn*Rn

W= Weight i.e proportion of fund invested in each asset class

Wa = 20%, Wb- 40%, Wc- 20%

Ra-2%, Rb-18%, Rc- 3%

E(R) = (0.2 *2%) + (0.4× 18%) + (0.2*3%) = 8.2%

Expected return = 8.2%

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