Florida Company (FC) and Minnesota Company (MC) are both service companies.

QUESTION

Florida Company (FC) and Minnesota Company (MC) are both service companies. Their historical return for the past three years are: FC: 5%,15%, 20%; MC: 8%, 8%, 20%. If FC and MC are combined in a portfolio with 50% of the funds invested in each, calculate the expected return on the portfolio.
The mean is just the average of the numbers. It is easy to calculate; add up all the numbers then divided by how many numbers there are. Florida Companys (FC) historical returns for the past three years = -5%, 15%, 20% Minnesota Companys (MC) historical returns for the past three years = 8%,

8%, 20% Florida company (FC) = [(-5% 15% 20%) / 3] Florida company (FC) = 10% Minnesota Company (MC) = [(8% 8% 20%) / 3] Minnesota Company (MC) = 12% Hence, the right opiton is (B) FC: 10%, MC:12%

ANSWER:

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