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    Stocks and expected versus realized returns

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    You expect to invest your funds equally in four stocks with the following expected returns:
    STOCK A 16%
    STOCK B 14
    STOCK C 10
    STOCK D 8
    At the end of the year, each stock had the following realized returns:
    STOCK A -6%
    STOCK B 18
    STOCK C 3
    STOCK D -22
    Compare the portfolio's expected and realized returns:

    © BrainMass Inc. brainmass.com October 2, 2022, 4:47 am ad1c9bdddf
    https://brainmass.com/statistics/central-tendency/stocks-expected-versus-realized-returns-515064

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    The expected return of the portfolio is the weighted averages of the individual funds returns:
    (1.1)
    Where is the proportion of the portfolio of fund i with return
    Needless to say that
    (1.2)
    When all funds are distributed equally, that is:
    (1.3)
    Equation (1.1) becomes the standard average:

    (1.4)

    In our case we have three funds with expected returns:
    (1.5)
    If equal amount is invested in all funds then
    And the expected return is:
    (1.6)

    The actual returns were:
    (1.7)
    Thus, the realized returns are:
    (1.8)

    So from expected gain of 12%, the portfolio actual return was a loss of 1.75%

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 2, 2022, 4:47 am ad1c9bdddf>
    https://brainmass.com/statistics/central-tendency/stocks-expected-versus-realized-returns-515064

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