CA Final · Advanced Financial Management · Portfolio Management
Meera Textiles Ltd's treasury holds a portfolio of two equity shares. Share A (Rs 6,00,000 invested) has an expected return of 15% and Share B (Rs 4,00,000 invested) has an expected return of 10%. What is the expected return of the portfolio?
The portfolio's expected return is 13%, because it is the weighted average of the individual returns using investment proportions of 60% and 40%: 0.6 x 15% plus 0.4 x 10%. A simple average would wrongly give 12.5%.
- A12.5%
- B13.0%Correct
- C12.0%
- D14.0%
Explanation
Weights: A = 6/10 = 0.6, B = 0.4. Expected return = 0.6 x 15 + 0.4 x 10 = 9 + 4 = 13%. The 12.5% option uses a simple average of 15% and 10% and ignores the unequal weights.
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