Jim inherited $100,000 portfolio of investments. The portfolio is comprised of the following 3 investments.
Expected Rate of Return $Value
T-Bills 2.9% $50,000
GMC 6.5% $31,000
Harley Davidson 13.4% $ 19,000
a) Based on the current portfolio composition and the expected rates of return, what is the expected rate of return on Jim's portfolio.
b) If Jim wants to increase his expected portfolio rate of return, he could increase the allocated weight of the portfolio he has invested in stock (GMC and Harley Davidson) and decrease his holdings of T-Bills. If Jim moves all his money out of T-Bills and splits it evenly between the two stocks, what will be his expected rate of return?