Problem 11-21 Portfolio Returns [LO 1] Series Average return Determine the retur
ID: 2765350 • Letter: P
Question
Problem 11-21 Portfolio Returns [LO 1]
Series
Average return
Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What was the return on a portfolio that was equally invested in small stocks and Treasury bills? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Use the following table:Explanation / Answer
Solution:
Requirement 1:
Return on a Portfolio (equally invested in large-company stocks and long-term corporate bonds)
Equally invested means 50% or 0.5 in large company stocks and 50% or 0.5 in long term corporate bonds
Return on a Portfolio = (Average Return of Large stocks x Weight of large Stock) + (Average Return on Long-term corporate bonds x Weight of Long-term corporate bonds)
= (11.94% x 0.5) + (6.32% x 0.50)
= 9.13%
Requirement 2:
Return on a portfolio that was equally invested in small stocks and Treasury bills = (Average Return of Small Stock x Weight) + (Average Return on Treasury bill x weight)
= (16.64% x 0.5) + (3.92% x 0.5)
= 10.28%