Portfolio Expected Return

Portfolio Expected Return

The expected return of a portfolio is the weighted average of the expected returns of its constituent assets.

If a portfolio holds assets with returns r₁, r₂, …, rₙ and corresponding weights w₁, w₂, …, wₙ (where the weights sum to 1), the portfolio return is:

$E[R_p] = \sum_{i=1}^{n} w_i \cdot r_i$

This is simply the dot product of the weight vector and the return vector.

Example

A portfolio holds two assets:

• Asset A: weight 0.6, expected return 10%
• Asset B: weight 0.4, expected return 15%

Portfolio return = 0.6 × 0.10 + 0.4 × 0.15 = 0.12 (12%)

Your Task

Implement portfolio_return(weights, returns) that computes the expected return of a portfolio given a list of weights and a list of expected returns.