A stock portfolio consists of four stocks. Stock A represents 20% of the…
2024
A stock portfolio consists of four stocks. Stock A represents 20% of the portfolio and has a return of 6%. Stock B represents 30% of the portfolio and has a return of 8%. Stock C represents 20% of the portfolio and has a return of 4%. Stock D represents the remaining 30% of the portfolio and has a negative-return of 5%. What is the average return of the portfolio?
- A.
2.9%
- B.
2.6%
- C.
3.2%
- D.
3.4%
Attempted by 3 students.
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Correct answer: A
Identify the weights and returns for each stock:
Stock A: Weight = 0.20, Return = 6%
Stock B: Weight = 0.30, Return = 8%
Stock C: Weight = 0.20, Return = 4%
Stock D: Weight = 0.30, Return = -5%
Calculate the contribution of each stock:
Multiply each stock's weight by its return:
Stock A: 0.20 * 6% = 1.2%
Stock B: 0.30 * 8% = 2.4%
Stock C: 0.20 * 4% = 0.8%
Stock D: 0.30 * -5% = -1.5%
Sum the contributions:
Total Portfolio Return = 1.2% + 2.4% + 0.8% - 1.5% = 2.9%