Problem: Roger has just been hired as chief portfolio officer of Bear United Capital. As part of this new position, he has been asked to assemble a model portfolio from a set of assets. The assets in the model portfolio include the following:
|
Weight
|
Expected Return
|
Actual Return
|
|
Stock A
|
0.2
|
0.05
|
0.09
|
|
Stock B
|
0.1
|
0.07
|
0.04
|
|
Stock C
|
0.25
|
0.12
|
0.14
|
|
Stock D
|
0.05
|
0.02
|
0.04
|
|
Stock E
|
0.1
|
0.04
|
0.01
|
|
Stock F
|
0.3
|
0.35
|
-0.02
|
Using the above assets from the model portfolio and their associated values, calculate the following:
• The rate of return of the portfolio
• The expected rate of return on the portfolio
• Discuss your perception of the two returns and what is driving each in detail
• Which return is a better measure of return on a portfolio, and when should you use each?