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If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%, the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is:________
A) 13%
B) 18.6%
C) 11.52%
D) 19.14%

Answer :

Answer:

B) 18.6%

Explanation:

Given that

The expected return on Stock 1 is 6% and the holding percentage is 10%

The expected return on Stock 2 is 20% and holding percentage is 20%

So, The computation of the total expected return is

= Expected return on Stock 1 × holding percentage + Expected return on Stock 2 × holding percentage

= 6% × 10% + 20% × 90%

= 0.6% + 18%

= 18.6%

Basically we multiplied the expected return with its holding percentage

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