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Expected return on a portfolio

What is the expected return on a portfolio if an equal amount is invested in each stock? What would be expected return if 50 percent of your funds is invested in stock A and the remaining funds are split evenly between stocks B and C?

Stock A 7%
Stock B 12
Stock C 20

You are considering two stocks and have determined the following information.

Stock A
Return Probability of the Return
18% 25%
14 50
10 25

Stock B
Return Probability of the Return
22% 10%
12 60
11 30

A. Which of the two stocks has the higher expected return?
B. Which stock is riskier?
C. Given your answers to the two previous questions, what stock is preferred?

Solution Summary

This gives the steps to compute expected return on a portfolio

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