- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 2. Rates of Return
CFA Practice Question
In January 2011, a private investor decided to allocate $2,000 to a gas and electric utilities mutual fund, $5,000 to a small company mutual fund, and $3,000 to a technology stock mutual fund. In 2011, the utilities fund had a return rate of 4.3%, the small company mutual fund had a return rate of 1.4%, and the technology stock mutual fund had a return rate of 8.5%. Find the average rate of return on thses investments.
A. 4.11%
B. 4.73%
C. 14.2%
Explanation: The average return is the weighted average.
User Contributed Comments 3
| User | Comment |
|---|---|
| mc25456 | 0.2*4.3%+0.5*1.4%+0.3*8.5% |
| CWade10 | why wouldn't you use geometric mean of returns? |
| ConnerVP1 | The average would be (4.3+1.4+8.5)/3 = 4.73% The weighted average, and also the portfolio return, is as shown by mc2546 above. Question is somewhat misleading... |