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8 June, 16:56

You decide to form a portfolio of the following amounts invested in the following stocks. What is the expected return of the portfolio?

Stock Amount Beta Expected Return

Apple $1,000 2.40 10.50%

Microsoft $7,000 0.73 16.90%

Ford $6,000 1.95 15.75%

Time Warner $6,000 1.27 11.80%

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  1. 8 June, 19:38
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    Answer: Expected return of the portfolio = 14,70%

    Explanation: First we must add the amounts to calculate the total capital:

    1000 + 7000 + 6000 + 6000 = $20000

    The performance of a portfolio is given by the sum of each individual expected return weighted by its weight in capital.

    Therefore we must calculate the weight (w) of each type of action:

    W (apple) = 1000 / 20000 = 0,05

    W (microsoft) = 7000 / 20000 = 0,35

    W (ford) = 6000 / 20000 = 0,30

    W (time warner) = 6000 / 20000 = 0,30

    Expected return of the portfolio : (0,1050. 0,05) + (0,1690. 0,35) + (0,1575. 0,30) + (0,1180. 0,30) = 0,14705 = 14,70%
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