Asked by Fatma Elzahraa on Jun 25, 2024
Verified
Daring Dora holds 90% of her assets in high-technology stocks, earning 12%, and 10% in long-term government bonds, earning 6%. The expected return on her portfolio:
A) is 6%.
B) is 9%.
C) is 11.4%
D) is 12%.
E) cannot be determined without knowing what the dollar value of her assets is.
High-Technology Stocks
These are shares in companies involved in high-tech industries, known for rapid innovation and growth potential but also higher risk.
Long-Term Government Bonds
Debt securities issued by a government with a maturity of typically more than ten years, used to fund public expenditures.
Expected Return
The anticipated gain or loss from an investment over a period, considering both the probability of outcomes and the impact of different outcomes.
- Learn the methodology for calculating a portfolio's expected return and its integral parts.
Verified Answer
A'
Alexis 'JayyJun 27, 2024
Final Answer :
C
Explanation :
To find the expected return, we need to calculate the weighted average of the returns on the two investments:
Expected return = (0.9 x 0.12) + (0.1 x 0.06) = 0.108 + 0.006 = 0.114 = 11.4%
Therefore, the expected return on Dora's portfolio is 11.4%.
Expected return = (0.9 x 0.12) + (0.1 x 0.06) = 0.108 + 0.006 = 0.114 = 11.4%
Therefore, the expected return on Dora's portfolio is 11.4%.
Learning Objectives
- Learn the methodology for calculating a portfolio's expected return and its integral parts.