Consider a Portfolio Comprised of Four Risky Securities

question 48

Multiple Choice

Consider a portfolio comprised of four risky securities.Assume the economy has three economic states with varying probabilities of occurrence.Which one of the following will guarantee that the portfolio variance will equal zero?

• A)The portfolio beta must be 1.0.
• B)The portfolio expected rate of return must be the same for each economic state.
• C)The portfolio risk premium must equal zero.
• D)The portfolio expected rate of return must equal the expected market rate of return.
• E)There must be equal probabilities that the state of the economy will be a boom or a bust.

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Definitions:

Religious Sects

Subgroups within larger religious movements or denominations characterized by distinct beliefs, practices, or rituals.

Anglican Church

The primary state church of England, characterized by a middle path ("via media") between Roman Catholicism and Protestantism.

King Charles I

The monarch of England, Scotland, and Ireland from 1625 until his execution in 1649, whose reign was marked by religious and political strife leading to the English Civil War.

Parliament Supporters

Individuals or groups who supported the Parliamentarian cause during the English Civil War, opposing the Royalists who supported the monarchy.