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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

Mr. Iyer's portfolio is Rs 10 lakh in equity (expected return 12%) and Rs 5 lakh in debt (expected return 6%), with no other assets. What is the expected return of the portfolio?

The expected return is 10%. Equity is two-thirds of the portfolio at 12%, giving 8%, and debt is one-third at 6%, giving 2%. The weighted sum is 10%. A simple average of 9% is wrong because it ignores the portfolio weights.

  1. A9.0%
  2. B10.0%Correct
  3. C8.0%
  4. D11.0%

Explanation

Weights: equity 10/15 = 2/3, debt 1/3. Expected return = (2/3)(12%) + (1/3)(6%) = 8% + 2% = 10%. Check: 1.2 lakh + 0.3 lakh = 1.5 lakh on 15 lakh = 10%. A simple average of 9% ignores the weights.

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