Fremont Enterprises has an expected retun of 15% and Laurelhurst News has an expected return of 20% F you put 70% of your portfolio in Laurelhurst and 30% in Fremont, what is the expected retum of your portfolo? The expected return on the portfolio is (Rounded to two decimal places)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
![**Expected Return on a Portfolio: Calculation and Explanation**
Fremont Enterprises has an expected return of 15% and Laurelhurst News has an expected return of 20%. If you put 70% of your portfolio in Laurelhurst and 30% in Fremont, what is the expected return of your portfolio?
The expected return on the portfolio is [ ]%. (Rounded to two decimal places.)
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### Explanation:
To find the expected return on a portfolio composed of different investments, we use the weighted average of the expected returns of the individual investments. The weights correspond to the proportion of the total portfolio invested in each investment.
Given:
- Expected return of Fremont Enterprises (R_Fremont) = 15%
- Expected return of Laurelhurst News (R_Laurelhurst) = 20%
- Proportion of portfolio in Laurelhurst News (W_Laurelhurst) = 70% = 0.70
- Proportion of portfolio in Fremont Enterprises (W_Fremont) = 30% = 0.30
The formula for the expected return of the portfolio (R_portfolio) is:
\[ R_{portfolio} = (W_{Laurelhurst} \times R_{Laurelhurst}) + (W_{Fremont} \times R_{Fremont}) \]
Plugging in the values:
\[ R_{portfolio} = (0.70 \times 20\%) + (0.30 \times 15\%) \]
\[ R_{portfolio} = (0.70 \times 0.20) + (0.30 \times 0.15) \]
\[ R_{portfolio} = (0.14) + (0.045) \]
\[ R_{portfolio} = 0.185 \]
Hence, the expected return on the portfolio is:
\[ R_{portfolio} = 18.50\% \]
So, the expected return on the portfolio is 18.50%.
**Note:** Always make sure to convert percentage values into decimal form before performing calculations. For example, 20% becomes 0.20.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F93e3cd7e-a9a9-4aef-84c9-9b5be41d5a7f%2Feff043f1-6cd6-4496-9c6e-6a7ea7b29b35%2F17sri9j_processed.jpeg&w=3840&q=75)
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