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14 June, 19:53

An investment advisor has recommended a $50,000 portfolio containing assets A, B, and C: $25,000 will be invested in A with an expected return of 12%; $10,000 will be invested in B with an expected return of 18%; and $15,000 will be invested in C with an expected annual return of 8%. The expected annual return of this portfolio is

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  1. 14 June, 20:49
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    The expected annual return of this portfolio is 12%

    Explanation:

    For calculating the expected annual return of the portfolio first we have to compute the weightage of every assets which is equals to

    = Assets value : total value of assets

    where,

    total value of assets = A + B + C

    = $25,000 + $10,000 + $15,000

    = $50,000

    So

    For A = $25,000 : $50,000 = 0.5

    For B = $10,000 : $50,000 = 0.2

    For C = $15,000 : $50,000 = 0.3

    Now the formula should be applied to compute the expected annual return for all assets which is show below

    = A assets weightage * expected return + B assets weightage * expected return + C assets weightage * expected return

    = 0.5 * 12% + 0.2 * 18% + 0.3 * 8%

    = 6 + 3.6 + 2.4

    = 12%

    Hence, The expected annual return of this portfolio is 12%
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