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The expected return of Stock A is 7%, Stock B is 10% and Stock C is 12%. If you equally invest in these three stocks, what is the expected return of your three-stock portfolio?

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Shahzaibfaraz

Answer:

Portfolio return = 0.09667 or 9.667% rounded off to 9.67%

Explanation:

To calculate the expected rate of return of a stock portfolio, we take the weighted average of the expected return for each stock. The formula to calculate the expected return of portfolio is,

Portfolio return = wA * rA  + wB * rB  +  ...  +  wN * rN

Where,

  • w represents the weight of each stock
  • r represents the return of each stock

As we have 3 stocks with equal investment in each stock, we can say the weight of each stock is 1/3.

Portfolio return =  1/3 * 0.07  +  1/3 * 0.1  +  1/3 * 0.12

Portfolio return = 0.09667 or 9.667% rounded off to 9.67%

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