What is the expected return on a portfolio formula?

The formula for the expected return on a portfolio is indeed based on the concept of a weighted average of the returns of the individual assets within that portfolio. Specifically, this involves multiplying the return of each asset by its proportion (or weight) in the portfolio and then summing these products.

In practical terms, if you have a portfolio consisting of various assets, the expected return reflects the average return that one would anticipate from the portfolio as a whole, based on the performance of each component. By applying the weights of each asset, the formula captures both the size of the investment in each asset and its contribution to the overall return. This approach is central to modern portfolio theory, where understanding the risk and return relationship is crucial for constructing an optimal portfolio.

The other options do not accurately represent the calculation of expected return on a portfolio. For example, using a weighted average of market returns does not apply to specific portfolio calculations since it lacks a focus on individual asset contributions. Similarly, the product of total investment and average return doesn't encapsulate how weights are determined and combined in a portfolio context. Finally, simply taking the mean of historical returns does not account for the current allocation of assets or their weights in the portfolio, making it less applicable for estimating expected returns.