729 In order to expect that it will fund her retirement, Glenda needs her portfo

Question

729

In order to expect that it will fund her retirement, Glenda needs her portfolio to have an expected return of 12.0 percent per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 9 percent and 10 percent per year, respectively, then what is the minimum expected annual return for Stock 3 that is likely to enable Glenda to achieve her investment requirement? (Round answer to 1 decimal place, e.g. 17.5 percentage.)

Explanation / Answer

expected return=25%*9%+50%*10%+25%*r

12%=7.25%+25%*r

25%*r=4.75%

r=4.75%/25%=19%

annual return for 3 =19%

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