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Stock A has an expected return of 8%, stock B has an expected return of 2%, and the return on Treasury-Bills is 4%. You buy $200 of A, short $100 of B and invest the short proceeds in Treasury Bills. What is the expected return of your portfolio?
A. 8%
B. 9%
C. 10%
D. 11%

Respuesta :

anthougo

Answer:

The expected return of the portfolio is:

= C. 10%

Explanation:

a) Data and Calculations:

Expected return of Stock A = 8%

Expected return of Stock B = 2%

Return of Treasury = 4%

Cost of Stock A = $200

Sale of Stock B = $100

Investment in Treasury Bills = $100

                          Stock A      Stock B      Treasury Bills   Portfolio

Expected return    8%             2%

Weight of stock  0.667         0.333

Return                 0.0534       0.0067           0.04            0.1001

Portfolio return = 10%

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