Your portfolio has three asset classes. u. s. government t-bills account for 47% of the portfolio, large-company stocks constitute another 38%, and small-company stocks make up the remaining 15%. if the expected returns are 4.08% for the t-bills, 11.38% for the large-company stocks, and 15.53% for the small-company stocks, what is the expected return of the portfolio?

Expected return of the portfolio = 8.57%

Explanation:

The expected return of the portfolio is the weighted average return of all assets in that portfolio, which is calculated as below:

The expected return of the portfolio = (Weight of U.S. government T-bills x Return of U.S. government T-bills) + (Weight of large-company stocks x Return of large-company stocks) +  (Weight of small-company stocks x Return of small-company stocks)

= 47% x 4.08% + 38% x 11.38% + 15% x 15.53% = 8.57%

ER = 8.57%

Explanation:

The total expected return can be calculated by computing return with weights of the portfolio.

Expected Return

= W1*R1 + W2*R2 +W3*R3

where W1 is the weight of 1 asset and subsequent assets as W2 and W3.

R1 = return of assets and subsequent assets as R2 and R3,

ER = 0.47(0.0408) + 0.38(0.1138) + 0.15(0.1553)

ER = 8.57%

Hope that helps.

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