Respuesta :
Answer:
Hence, the expected rate of return after 1 year for Mary's portfolio is [tex]0.17751[/tex]
Step-by-step explanation:
We have,
Purchase 7 shares of stock A for $70 per share and 4 shares of stock B for $100 per share then The expected rate of return after 1 year for Mary's portfolio.
Weight invested in stock A is [tex]W_x=\frac{7\times 70}{7\times 70+4\times 100}[/tex]
[tex]\Rightarrow W_x=\frac{490}{490+400}\\\Rightarrow W_x=\frac{490}{890}\\\Rightarrow W_x=\frac{49}{89}\\\Rightarrow W_x=0.5505[/tex]
Weight invested in stock B is[tex]W_y=\frac{4\times 100}{7\times 70+4\times 100}[/tex]
[tex]\Rightarrow W_y=\frac{400}{490+400} \\\Rightarrow W_y=\frac{400}{890} \\\Rightarrow W_y=\frac{40}{89} \\\Rightarrow W_y=0.4494[/tex]
The expected value of the rate of return[tex]=W_x\times\;\text{expected rates of stock A}+W_y\times\;\text{expected rates of stock B}[/tex]
[tex]=0.5505\times0.02+0.4494\times0.15[/tex]
[tex]=0.01101+0.06741[/tex]
[tex]=0.17751[/tex]
