EXAMPLE

Suppose the expected return on two assets, L (low-risk low-return) and H (high-risk high-return), are 12 and 16 per cents respectively. If the corresponding weights are 0.65 and 0.35, the expected portfolio return is = (0.65 x 0.12 + 0.35 x 0.16) , 0.134 or 13.4 per cent.

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