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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Modern Portfolio Theory

Asha invests Rs 60,000 in Stock A with expected return 10% and Rs 40,000 in Stock B with expected return 15%. What is the expected return of her portfolio?

The portfolio's expected return is 12%. It is the weighted average of the holdings: 60% weight times 10% gives 6%, and 40% weight times 15% gives 6%, so the total is 12%, not the simple average of 12.5%.

  1. A12.5%
  2. B12.0%Correct
  3. C13.0%
  4. D11.0%

Explanation

Weights are 60% and 40%. Expected return = 0.6 x 10 + 0.4 x 15 = 6 + 6 = 12%. The simple average of 12.5% ignores the weights, and 13% reverses the weights (0.4 x 10 + 0.6 x 15 = 13).

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