portfolio expected return

Portfolio expected return is the anticipated return that an investor can expect to earn from holding a diversified portfolio of assets. It is calculated as the weighted average of the expected returns of the individual assets within the portfolio, taking into account the proportion or weight of each asset in the portfolio.

To calculate the portfolio expected return, follow these steps:

1. Determine the expected return for each asset in the portfolio. This could be based on historical data, fundamental analysis, or other forecasting methods.
2. Assign weights to each asset in the portfolio. The weights represent the proportion of each asset’s value relative to the total value of the portfolio. The weights should sum up to 1 (or 100%).
3. Multiply the expected return of each asset by its weight.
4. Sum up the weighted returns of all assets to obtain the portfolio expected return.

The formula for calculating the portfolio expected return can be expressed as:

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

For example, if you have a portfolio with three assets:

• Asset 1: Expected return of 8% with a weight of 0.4 (40%)
• Asset 2: Expected return of 10% with a weight of 0.3 (30%)
• Asset 3: Expected return of 6% with a weight of 0.3 (30%)

The portfolio expected return would be:

Portfolio Expected Return = (0.4 * 0.08) + (0.3 * 0.10) + (0.3 * 0.06) = 0.032 + 0.03 + 0.018 = 0.08 or 8%

Therefore, the portfolio is expected to generate an 8% return based on the weighted average of the expected returns of the individual assets.

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