To calculate this result, we first need to calculate the portfolio value, then determine the weights for each stock, and then calculate the expected return.
Portfolio Value: = sum of market values = 5,000 + 3,000 + 4,000 = 12,000
Portfolio Weights:
WA = 5,000 / 12,000 = 0.4167
WB = 3,000 / 12,000 = 0.2500
WC = 4,000 / 12,000 = 0.333
Expected Return
ERportfolio = S(ERstock)(W% of funds invested in each of the stocks)
ER = wAERA + wBERB + wCERC, where ER = Expected Return and w = % invested in each stock.
ER = (0.4167 * 12.0) + (0.2500 * 8.0) + (0.333 * 9.0) = 10.0%
