A stock portfolio consists of three stocks. Stock A represents 30% of the portfolio and has a return of 5%. Stock B represents 40% of the portfolio and has a return of 10%. Stock C represents the remaining 30% of the portfolio and has a return of 8%. What is the average return of the portfolio?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. 7.9%.
Average return = (30% × 5%) + (40% × 10%) + (30% × 8%)
= (0.3 × 5) + (0.4 × 10) + (0.3 × 8)
= 1.5 + 4 + 2.4 = 7.9%