11.3 Expected return of a 2 asset-portfolio

To calculate the expected return of a two-asset portfolio, you need to consider the expected returns of each individual asset and the respective weights of those assets in the portfolio. The formula for the expected return of a portfolio is:

Expected Return of Portfolio = (Weight of Asset 1 * Expected Return of Asset 1) + (Weight of Asset 2 * Expected Return of Asset 2)

For example, let’s assume we have a portfolio consisting of two assets, Asset 1 and Asset 2. The weights of Asset 1 and Asset 2 in the portfolio are 0.6 and 0.4, respectively. The expected return of Asset 1 is 8% and the expected return of Asset 2 is 10%.

Using the formula, we can calculate the expected return of the portfolio:

Expected Return of Portfolio = (0.6 * 8%) + (0.4 * 10%) Expected Return of Portfolio = 0.048 + 0.04 Expected Return of Portfolio = 0.088 or 8.8%

Therefore, the expected return of the two-asset portfolio is 8.8%.