Which One of the Following Statements Is Correct About a Portfolio

question 84

Multiple Choice

Which one of the following statements is correct about a portfolio that is invested 30% in stock A, 40% in stock B, and 30% in stock C?

• A) The expected return on the portfolio is equal to the summation of the returns on the individual securities within the portfolio divided by three.
• B) The standard deviation of the portfolio is equal to the summation of the weights of each security multiplied by the standard deviation of each respective security.
• C) The expected return on the portfolio is equal to the portfolio beta times the weighted average of the expected returns of each of the individual securities in the portfolio.
• D) The standard deviation of the portfolio is equal to the square root of the summation of the individual security variances.
• E) The expected return of the portfolio is equal to the risk free rate of return plus a risk premium based on a weighted average of the betas of the individual securities and the
• Market risk premium.

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Definitions:

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, giving them partial ownership of the company.

Traditional View

A perspective or approach that is based on customs, beliefs, or practices that have been handed down from past generations.

Matrix Corporation

A complex organizational structure that combines functional and product departments in a dual authority system.