Chapter 11, Problem 3QAP

Summary Introduction

Adequate information:

Weight of Stock X $\left({\text{W}}_{\text{X}}\right)$ = 20%

Weight of Stock Y $\left({\text{W}}_{\text{Y}}\right)$ = 45%

Weight of Stock Z $\left({\text{W}}_{\text{Z}}\right)$ = 35%

Expected Return of Stock X $\left({\text{ER}}_{\text{X}}\right)$ = 10.5%

Expected Return of Stock Y $\left({\text{ER}}_{\text{Y}}\right)$ = 16.1%

Expected Return of Stock Z $\left({\text{ER}}_{\text{Z}}\right)$ = 12.4%

To compute: Expected return on the portfolio.

Introduction: Expected return on the portfolio refers to the potential gains or losses that are expected on the investment portfolio.