question archive You hold a portfolio that has an expected return of 9
You hold a portfolio that has an expected return of 9
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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.9.25% O c. 10.27% O d. 8.85% O e. 10.16%
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The return of the portfolio is computed as shown below:
= Existing Return x weight of investment + Return of ABC x weight of ABC
= 9.75% x $ 85,000 / ($ 85,000 + 1,500 x $ 10) + 12.5% x (1,500 x $ 10) / ($ 85,000 + 1,500 x $ 10)
= 9.75% x $ 85,000 / $ 100,000 + 12.5% x $ 15,000 / $ 100,000
= 9.75% x 0.85 + 12.5% x 0.15
= 10.16% Approximately
