Answer:
ER(P) = RABT(WABT) + RLOW(WLOW) + RBBL(WBBL)
ER(P) = -10(0.50) + 21(0.30) + 12.5(0.20)
ER(P) = -5 + 6.3 + 2.5
ER(P) = 3.8%
Value of ABT = 200 shares @ $50 = $10,000
Value of LOW = 200 shares @30 = $6,000
Value of BBL = 100 shares @ $40 = $4,000
Total value of investments $20,000
Weight of ABT = $10,000/$20,000 x 100 = 50%
Weight of LOW = $6,000/$20,000 x 100 = 30%
Weight of BBL = $4,000/$20,000 x 100 = 20%
Explanation:
In this case, we need to calculate the expected return of the portfolio, which is the aggregate of return of each stock multiplied by the weight of each stock. The weight of each stock is the value of each stock divided by the total investment. The variables are defined as follows:
ER(P) = Expected return of portfolio, WABT = Weight of ABT, WLOW = weight of LOW, WBBL = weight of BBL, RABT= Return of ABT, RLOW = Return of LOW and RBBL = return of BBL.
According to given equation, the return on your portfolio over the year is equal to option C: 3.8%
The term portfolio refers to as a collection of various investments, stocks, bonds and fixed deposits. It can include gold and mutual funds.
ER(P) = Return on ABT (Weight of ABT) + Return on LOW(Weight of LOW) + Return on BLL (Weight of BBL)
ER(P) = -10(0.50) + 21(0.30) + 12.5(0.20)
ER(P) = -5 + 6.3 + 2.5
ER(P) = 3.8%
Working Note:-
Value of ABT= 200 shares $50 = $10,000
Value of LOW = 200 shares 30 = $6,000
Value of BLL= 100 shares $40 = $4,000
Total value of investments =$20,000
Weight of ABT = $10,000/$20,000 x 100 = 50%
Weight of LOW = $6,000/$20,000 x 100 = 30%
Weight of BLL= $4,000/$20,000 x 100 = 20%
Therefore, correct option is C.
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