Use the following table: Series Average return Determine the return on a portfol

Question

Use the following table:

  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).)

   

    

  Series

Average return

  Large stocks 11.74 %   Small stocks 16.44   Long-term corporate bonds 6.22   Long-term government bonds 6.1   U.S. Treasury bills 3.82   Inflation 3.1

Explanation / Answer

Return on portfolio = summation( w1*r1 + w2*r2 + ....)

wi = weightage of i th asset in portfolio

ri = return on i th asset in portfolio

a)

return = 0.5*return on large company stock + 0.5* long-term corporate bonds

= 0.5*11.74+ 0.5*6.22 = 8.98 %

b)

return = 0.5*16.44 + 0.5*3.82 = 10.13 %

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