CFA Level 1 Portfolio Weighted-Average Return Calculator

Calculate Portfolio Weighted-Average Return

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Question

You are examining a portfolio composed of 1/3 money-market investments, 1/3 bonds, and 1/3 stocks. Last year, the return on the money-market investments was

5%; the return on bonds was 15%, and the return on stocks was -2%. What is the portfolio's weighted-average return?

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Explanations

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A. B. C. D.

D

The portfolio weighted-average return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 1/3 * 0.05 + 1/3 * 0.15 + 1/3 * -0.02 = 6.00%. Note that because of the equal weighting, this is the same as the arithmetic return: (5% + 15% - 2%) / 3 = 18% / 3 = 6%.

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