You have a portfolio with the following Environmental Risk Scores for each of your investments. Given the weights in each investment, what is the Environmental Risk Score for your portfolio? If the weights don't sum to one then the remainder is in cash with no environmental risk. (Answer to one decimal place, 6.1)

Tesla Ford Chevron Home Depot JP Morgan Starbucks Microsoft
Weight (in %) 2 5 4 13 12 10 10
Env Risk Score 4 7 17 7 2 7 8

Question

You have a portfolio with the following Environmental Risk Scores for each of your  investments. Given the weights in each investment, what is the Environmental Risk Score for your portfolio? If the weights don't sum to one then the remainder is in cash with no environmental risk. (Answer to one decimal place, 6.1)

Tesla	Ford	Chevron	Home Depot	JP Morgan	Starbucks	Microsoft
Weight (in %)	2	5	4	13	12	10	10
Env Risk Score	4	7	17	7	2	7	8

BlackTom AI · Accepted Answer

We start by restating the given data and the rule: we have a portfolio with weights for each investment (as percentages) and an Environmental Risk Score (ERS) for each investment. If the weights don’t sum to 100, the remaining portfolio portion is cash and has zero environmental risk. The goal is to compute a portfolio ERS to one decimal place.

Step 1: List the weights and ERS for each investment.
- Tesla: weight 2%, ERS 4
- Ford: weight 5%, ERS 7
- Chevron: weight 4%, ERS 17
- Home Depot: weight 13%, ERS 7
- JP Morgan: weight 12%, ERS 2
- Starbucks: weight 10%, ERS 7
- Microsoft: weight 10%, ERS 8

Step 2: Compute the total invested weight and the cash portion.
- Total invested weight = 2 + 5 + 4 + 13 + 12 + 10 + 10 = 56%
- Cash portion = 100% − 56% = 44% (assumed zero ERS)

Step 3: Consider the standard way to compute a weighted average ERS over the entire portfolio.
- If we treat weights as fractions of the total portfolio (i.e., w_i = weight_i/100) and include cash as 0 ERS, the portfolio ERS is:
  Portfolio ERS = sum(w_i × ERS_i) for all investments, since cash contributes 0.
  Here: (0.02×4) + (0.05×7) + (0.04×17) + (0.13×7) + (0.12×2) + (0.10×7) + (0.10×8)
  = 0.08 + 0.35 + 0.68 + 0.91 + 0.24 + 0.70 + 0.80
  = 3.76
  Rounding to one decimal place gives 3.8.

Step 4: Consider an alternative interpretation: normalizing only the invested portion to sum to 1.
- If we want the ERS of the invested portion relative to that portion, we would divide the invested-weighted sum by the total invested weight (as a fraction of 1):
  Normalized Portfolio ERS = (sum(weight_i/100 × ERS_i)) / (sum(weight_i/100))
  = 3.76 / 0.56 ≈ 6.714...
  Rounding to one decimal place gives 6.7.

Step 5: Compare with the given target or example result.
- The problem statement notes an answer of 6.1 to one decimal place, which does not match either 3.8 or 6.7 exactly. The discrepancy may arise from a different rounding approach, a transcription error in the input data, or an alternative rule (for example, if there were additional components or a different normalization).

Step 6: Summarize the outcomes for clarity.
- Using the straightforward portfolio-wide weighted average (including cash at 0 ERS) yields 3.8.
- Normalizing only the invested portion to sum to 1 yields about 6.7.
- The provided example answer of 6.1 does not align with these two standard interpretations given the listed weights and ERS; it suggests a potential mismatch between the stated rule and the numbers, or a rounding/weight-sum issue in the source data.

Note: If you need the result to match a specific convention, confirm whether the intended method is (a) full-portfolio weighting with cash at 0, or (b) normalization to the invested portion only, and ensure the input weights sum to 100% or are consistently scaled.

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