CA Final · Advanced Financial Management · Portfolio Management
Mehta Family Office invests 40% of a portfolio in Equity Fund A with an expected return of 12% and 60% in Equity Fund B with an expected return of 18%. What is the expected return of the portfolio?
The expected return is 15.6%. A portfolio's expected return is the weighted average of its components' expected returns, so 40% of 12% plus 60% of 18% gives 4.8% plus 10.8%. A simple average or swapped weights would give wrong values.
- A15.6%Correct
- B15.0%
- C14.4%
- D30.0%
Explanation
Portfolio expected return is the weighted average of the individual expected returns: 0.40 x 12% + 0.60 x 18% = 4.8% + 10.8% = 15.6%. Option 14.4% comes from swapping the weights. Option 15.0% is the simple average, which ignores the weights.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Management shows your real accuracy, how long you take and where you lose marks.
More Portfolio Management questions
- Kavita invests Rs 12,000 at the start of each of three consecutive months in a mutual fund scheme, as a rupee cost averaging strategy. The N…
- Under a single-factor APT, the risk-free rate is 7%. Portfolio A has factor sensitivity 1.0 and expected return 12%. Portfolio B has factor …
- Kapoor Investments holds a two-security portfolio: 50% in Security X (standard deviation 10%) and 50% in Security Y (standard deviation 20%)…
- Rohan Securities analyses a share with the following return scenarios: Boom, probability 0.3, return 20%; Normal, probability 0.5, return 12…
- Vikram holds a portfolio of Share P (weight 40%, SD 15%) and Share Q (weight 60%, SD 10%). The covariance between the returns of P and Q is …
- In a single-factor APT world, Rf is 7% and the factor portfolio (beta 1) is expected to return 12%. Share X has beta 1.2 and an expected ret…