Consider Supertech and Slowpoke. From our earlier calculations, we find
that the expected returns on these two securities are 17.5 percent and 5.5 percent, respectively.
The expected return on a portfolio of these two securities alone can be written as:

where X _Super is the percentage of the portfolio in Supertech and X_Slow is the percentage of the
portfolio in Slowpoke. If the investor with $100 invests $60 in Supertech and $40 in Slowpoke,
the expected return on the portfolio can be written as:

where X _A and X_B are the proportions of the total portfolio in the assets A and B, respectively.
(Because our investor can invest in only two securities, X_A + X_B must equal 1, or 100 percent.) E(R_A) and E(R_B) are the expected returns on the two securities.

Transcribed Image Text:

E(Rp) = X Super(.175) + Xslow(.055)