Share a Has an Expected Return of 20%, and Share

question 81

Multiple Choice

Share A has an expected return of 20%, and share B has an expected return of 4%.However, the risk of share A as measured by its variance is 3 times that of share B.If the two shares are
Combined equally in a portfolio, what would be the portfolio's expected return?

• A)4%
• B)12%
• C)20%
• D)Greater than 20%
• E)Need more information to answer.

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Definitions:

Contribution Format

A type of income statement format that separates fixed costs from variable costs to highlight the contribution margin.

Income Statement

A financial document that provides a summary of a company’s revenues, expenses, and profits/losses over a specific period, showing how the revenue is transformed into net income.

Variable Expenses

Expenses that vary directly with the amount of production or activity level.

Fixed Expenses

Costs that do not fluctuate with the volume of production or sales, remaining constant over a period, such as rent, salaries, and insurance premiums.