6 -7.27 David is going to purchase two stocks to form the initial holdings in hi

Question

6 -7.27

David is going to purchase two stocks to form the initial holdings in his portfolio. Iron stock has an expected return of 19 percent, while Copper stock has an expected return of 19 percent. If David plans to invest 30 percent of his funds in Iron and the remainder in Copper, what will be the expected return from his portfolio? (Round answer to 1 decimal place, e.g. 17.5%.) Expected return % What would the expected return of David's portfolio invests 70 percent of his funds in Iron stock? (Round answer to 1 decimal place, e.g. 17.5%.) Expected return %

Explanation / Answer

FIRST CASE

EXPECTED RETURN

= 0.30 * 19% + 0.7 * 19%

= 19%

--------------------------------------------------------------------------------------------------------------------------------

SECOND CASE

EXPECTED RETURN

= 0.7 * 19% + 0.3 * 19%

= 19%

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