- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 7. Statistical Concepts and Market Returns
- Subject 6. Measures of Dispersion

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**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.

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**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... |