Randomly Adding Securities to a Portfolio Will Most Likely

question 50

Multiple Choice

Randomly adding securities to a portfolio will most likely:

• A) reduce its risk and increase its expected return.
• B) reduce its risk and decrease its expected return.
• C) increase its risk and increase its expected return.
• D) reduce its risk and keep its expected return unchanged.

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Definitions:

Expected Value

The expected value is a measure of the central tendency of a random variable, representing the average outcome one would anticipate over an infinite number of trials.

Sample Proportions

The fraction or percentage of samples in a category or exhibiting a characteristic, used to estimate population proportions.

Population Proportions

Refers to the share or percentage of a specific subgroup within the overall population.

Variance

Variance quantifies the spread of data points around the average value, showing the extent of their dispersion.