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An investor has a $12,000 portfolio consisting of $7,000 in stock A with an expected return of 20% and $5,000 in stock B with an expected return of 10%. What is the investor’s expected return on the portfolio?
A)
12.2%.
B)
15.0%.
C)
15.8%.



Find the weighted mean where the weights equal the proportion of $12,000. (7,000 / 12,000)(0.20) + (5,000 / 12,000)(0.10) = 15.8%.

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Michael Philizaire is studying for the Level I CFA examination. During his review of measures of central tendency, he decides to calculate the geometric average of the appreciation/deprecation of his home over the last five years. Using comparable sales and market data he obtains from a local real estate appraiser, Philizaire calculates the year-to-year percentage change in the value of his home as follows: 20, 15, 0, -5, -5. The geometric return is closest to:
A)
11.60%.
B)
4.49%.
C)
0.00%.



The geometric return is calculated as follows:

[(1 + 0.20) × (1 + 0.15) × (1 + 0.0) (1 − 0.05) (1 − 0.05)]1/5 – 1,
or [1.20 × 1.15 × 1.0 × 0.95 × 0.95]0.2 – 1 = 0.449, or 4.49%.

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The owner of a company has recently decided to raise the salary of one employee, who was already making the highest salary in the company, by 40%. Which of the following value(s) is (are) expected to be affected by this raise?
A)
mean and median only.
B)
median only.
C)
mean only.



Mean is affected because it is the sum of all values / number of observations.  Median is not affected as it the midpoint between the top half of values and the bottom half of values.

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An investor has a portfolio with 10% cash, 30% bonds, and 60% stock. Last year, the cash returns was 2.0%, the bonds’ return was 9.5%, and the stocks’ return was –32.5%. What was the return on the investor’s portfolio?
A)
–16.45%.
B)
–33.33%.
C)
–7.00%.



Find the weighted mean. (0.10)(0.02) + (0.30)(0.095) + (0.60)(–0.325) = –16.45%.

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