You Own a Portfolio of 5 Stocks and Have 3

question 71

Multiple Choice

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock E. How will the weights be determined when you compute the rate of return for each economic state?

• A)The weights will be the probability of occurrence for each economic state.
• B)Each stock will have a weight of 20% for a total of 100%.
• C)The weights will decline steadily from Stock A to Stock E.
• D)The weights will be based on the amount invested in each stock as a percentage of the total amount invested.
• E)The weights will be based on a combination of the dollar amounts invested as well as the economic probabilities.

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Definitions:

Deadweight Loss

A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable.

Tax

Mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization.

Tax Cuts

Reductions in the amount of taxes that individuals or corporations are required to pay to the government.

Tax Revenue

The monetary gains that are acquired by governments from taxation.