Answer :
Answer:
Option (a) is correct.
Explanation:
Investments:
Stock A = $330,000
Stock B = $170,000
Stock C = $470,000
Returns(R):
Stock A = 11.50%
Stock B = 22.75%
Stock C = 10.25%
Total investment = $330,000 + $170,000 + $470,000
= $970,000
Weight for stock A = [tex]\frac{Investment}{Total\ investment}[/tex]
= [tex]\frac{330,000}{970,000}[/tex]
= 34.02%
Weight for stock B = [tex]\frac{Investment}{Total\ investment}[/tex]
= [tex]\frac{170,000}{970,000}[/tex]
= 17.53%
Weight for stock C = [tex]\frac{Investment}{Total\ investment}[/tex]
= [tex]\frac{470,000}{970,000}[/tex]
= 48.45%
Portfolio return for stock A = Weight for stock A × R of stock A
= 34.02% × 11.50%
= 3.91%
Portfolio return for stock B = Weight for stock B × R of stock B
= 17.53% × 22.75%
= 3.99%
Portfolio return for stock C = Weight for stock C × R of stock C
= 48.45% × 10.25%
= 4.97%
Expected return of portfolio:
= Portfolio return for stock A + Portfolio return for stock B + Portfolio return for stock C
= 3.91% + 3.99% + 4.97%
= 12.87%
= 12.9%