Consider a Portfolio with Three Stocks,each with the Same Value

question 1

Multiple Choice

Consider a portfolio with three stocks,each with the same value.The three stocks have expected returns of 15%,25%,and 50%.The expected return of this portfolio is

• A) 25%.
• B) 30%.
• C) 50%.
• D) 90%.

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Definitions:

Weak Axiom

A principle used in consumer choice theory that stipulates if a consumer chooses bundle A over bundle B when both are affordable, then the consumer should not choose B over A when prices change, holding income constant.

Risk Inconsistency

The phenomenon where an individual's tolerance for risk changes in unpredictable ways over time or across different contexts.

Expected Loss

The anticipated amount of loss a business might suffer due to various risk factors.

Risk Aversion

A preference for certainty over uncertainty, where an individual prefers outcomes with lower risk and potentially lower returns.