- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 8. Probability Concepts
- Subject 8. Portfolio Expected Return and Variance

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**CFA Practice Question**

Assume that we have 3 assets in a portfolio, the respective market values of which are $100, $400, and $500. Suppose also that E(R

_{1}) = 2%, E(R_{2}) = 4%, and E(R_{3}) = 6%. The whole portfolio has a market value of $1000. Determine the expected return of the portfolio.A. $16

B. $30

C. $48

**Explanation:**Since the whole portfolio has a market value of $1000, the respective weights would be:

W

_{1}= 100 / 1000 = 0.1

W

_{2}= 400 / 1000 = 0.4

W

_{3}= 500 / 1000 = 0.5

E(Rp) = 0.1 x 1000 x 2% + 0.4 x 1000 x 4% + 0.5 x 1000 x 6% = $48

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**User Contributed Comments**
1

User |
Comment |
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arsand |
This should not even be in the medium category |