Problem 6.27 (Part Level Submission) David is going to purchase two stocks to fo
ID: 1175868 • Letter: P
Question
Problem 6.27 (Part Level Submission) David is going to purchase two stocks to form the initial holdings in his portfolio. Iron stock has an expected return of 16 percent, while Copper stock has an expected return of 22 percent. Collapse question part (a) If David plans to invest 30 percent of his funds in Iron and the remainder in Copper, then what will be the expected return from his portfolio? (Round answer to 1 decimal place, e.g. 17.5%.) Expected return % Click if you would like to Show Work for this question: Open Show Work Link to Text Attempts: 0 of 2 used Save for later Submit Answer Expand question part (b) The parts of this question must be completed in order. This part will be available when you complete the part above.
Explanation / Answer
Weight of investment in Iron stock = 30% or 0.3
Weight of investment in copper stock = 1 - 0.3 = 0.7
Expected return = weight * expected return
Expected return of portfolio = 0.3 * 0.16 + 0.7 * 0.22
Expected return of portfolio = 0.048 + 0.154
Expected return of portfolio = 0.202 or 20.2%