Compute the expected return for the portfolio

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Reference no: EM132961744

Janet wants to invest her $1 million inheritance. She was planning to invest the entire amount in a mutual fund made up solely of Bank of Canada treasury bills. The expected return on this mutual fund is 8% per annum.

Her husband Stan insists that she invest in the following portfolio:

assets                                    Investments                 Expected future return

Mortgages.                           $250,000                          9.50%

Computer Companv Stocks        $200,000                        13%

Apartment Building                    $550,000                          17%

                                             $1,000,000

Problem (a) Compute the expected return for this portfolio.

Problem (b) Janet is concerned about portfolio efficiency. Stan told her: "This portfolio earns the maximum possible expected return and is the optimal portfolio. Its efficiency is irrelevant." Do you agree with this statement? Explain with reference to portfolio efficiency and Janet's risk preferences.

Reference no: EM132961744

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