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Assume that we have 3 assets in a portfolio, the respective market values of which are $100, $400 and $500. Suppose also that E (R1) = 2%, E(R2) = 4% and E(R3) = 6%. The whole portfolio has a market value of $1000. Determine the expected return of the portfolio.
Correct Answer: C
Since the whole portfolio has a market value of $1000, the respective weights would be: W = 100 / 1000 = 0.1. W = 400 / 1000 = 0.4. W = 500 / 1000 = 0.5. 1 2 3 So, E(Rp) = 0.1 x 1000 x 2% + 0.4 x 1000 x 4% + 0.5 x 1000 x 6% = $48.