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Two investment portfolios are shown.

\begin{tabular}{|c|l|l|c|}
\hline \multicolumn{1}{|c|}{Investment} & Portfolio 1 & Portfolio 2 & ROR \\
\hline Savings Account & \[tex]$3,500 & \$[/tex]1,450 & 2.80\% \\
\hline Government Bond & \[tex]$1,800 & \$[/tex]2,200 & -1.55\% \\
\hline Preferred Stock & \[tex]$1,950 & \$[/tex]3,700 & 11.70\% \\
\hline Common Stock & \[tex]$1,975 & \$[/tex]1,500 & 8.49\% \\
\hline
\end{tabular}

Portfolio 1 earns \$465.93.

Part A: Calculate how much Portfolio 2 earns. Show all work. (5 points)



Answer :

GinnyAnswer
To determine the earnings of Portfolio 2, we need to calculate the earnings from each investment category separately. The earnings for each investment category can be found by multiplying the initial amount invested by the respective rate of return (ROR).

#### Step 1: Calculate the earnings from the Savings Account in Portfolio 2
- Initial investment: \[tex]$1450 - Rate of Return (ROR): 2.80% \[ \text{Earnings from Savings Account} = 1450 \times \frac{2.80}{100} = 1450 \times 0.028 = \$[/tex]40.60 \]

#### Step 2: Calculate the earnings from the Government Bond in Portfolio 2
- Initial investment: \[tex]$2200 - Rate of Return (ROR): -1.55% \[ \text{Earnings from Government Bond} = 2200 \times \frac{-1.55}{100} = 2200 \times -0.0155 = -\$[/tex]34.10 \]

#### Step 3: Calculate the earnings from the Preferred Stock in Portfolio 2
- Initial investment: \[tex]$3700 - Rate of Return (ROR): 11.70% \[ \text{Earnings from Preferred Stock} = 3700 \times \frac{11.70}{100} = 3700 \times 0.117 = \$[/tex]432.90 \]

#### Step 4: Calculate the earnings from the Common Stock in Portfolio 2
- Initial investment: \[tex]$1500 - Rate of Return (ROR): 8.49% \[ \text{Earnings from Common Stock} = 1500 \times \frac{8.49}{100} = 1500 \times 0.0849 = \$[/tex]127.35 \]

#### Step 5: Calculate the total earnings for Portfolio 2
Now, we sum up the earnings from all the investment categories to get the total earnings:

[tex]\[ \text{Total Earnings for Portfolio 2} = \$40.60 + (-\$34.10) + \$432.90 + \$127.35 = \$566.75 \][/tex]

So, the total earnings for Portfolio 2 are \[tex]$566.75. Thus, Portfolio 2 earns \$[/tex]566.75.

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