question archive You hold a portfolio that has an expected return of 9
You hold a portfolio that has an expected return of 9
Subject:FinancePrice:2.86 Bought9
You hold a portfolio that has an expected return of 9.75% and a value of $85,000. You are in the process of buying 1,500 shares of ABC Corp at $10 a share and adding it to your portfolio. ABC has an expected return of 12.5%. What is the expected return on the portfolio after the purchase of ABC stock? Do not round your intermediate calculations.
a. 9.98%
b. 10.27%
c. 8.85%
d. 9.25%
e. 10.16%
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Computation of Expected return on Entire portfolio
| Particulars | Investment Amount | Weight | Expected Return | Weighted Average return ( Weight * Expected return) |
| Old portfolio | $85,000 | $ 85000/$ 100000=0.85 | 9.75% | 0.85*9.75% = 8.2875% |
| ABC stock | $15,000 | $ 15000/$ 100000= 0.15 | 12.50% | 0.15*12.5% = 1.875% |
| New portfolio( A+B) | $100,000 | Total | 10.1625% |
* ABC stock value = No.of shares purchased* Share price
= 1500*$ 10
=$ 15000
Therefore ABC stock value is $ 15000
Hence Expected return on the portfolio is 10.16% .So option e ) is the correct answer.
