A stock portfolio consists of four stocks. Stock A represents 20% of the portfolio and has a return of 6%. Stock B represents 30% of the portfolio and has a return of 8%. Stock C represents 20% of the portfolio and has a return of 4%. Stock D represents the remaining 30% of the portfolio and has a negative return of 5%. What is the average return of the portfolio?

Stock A: 20% of portfolio, return = 6%

Stock B: 30% of portfolio, return = 8%

Stock C: 20% of portfolio, return = 4%

Stock D: 30% of portfolio, return = -5%

The average return of a portfolio is the weighted sum of the returns of individual stocks, which is given by:

Average Return = $$(w_A \times r_A) + (w_B \times r_B) + (w_C \times r_C) + (w_D \times r_D)$$​​

Where:

$$w_A, w_B, w_C, w_D$$​ ​ are the weights (proportions) of stocks A, B, C, and D in the portfolio.

$$r_A, r_B, r_C, r_D$$​ ​ are the returns of stocks A, B, C, and D respectively.

Substitute the given values into the formula:

​$$\text{Average Return} = (0.20 \times 6\%) + (0.30 \times 8\%) + (0.20 \times 4\%) + (0.30 \times -5\%)$$​​

​$$\text{Average Return} = 1.2 + 2.4 + 0.8 - 1.5 = 2.9\%$$​​

Thus, The average return of the portfolio is 2.9%.