You Own a Portfolio Comprised of 4 Stocks and the Economy

question 18

Multiple Choice

You own a portfolio comprised of 4 stocks and the economy has 3 possible states. Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5%, regardless of the economic state. Given this, what must be value of the portfolio's variance be?

• A)negative, but not −1
• B)−1.0
• C)0
• D)1.0
• E)positive, but not +1

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Definitions:

Oligopolized Industry

A market structure characterized by a few firms that have significant control over market prices and competition.

Large Firms

are corporations or enterprises that operate on a large scale, typically having extensive operations, numerous employees, and a wide reach of influence and market control.

Concentration Ratio

A measure of the market share held by the largest firms within an industry, used to determine the level of competition and market structure.

Price Wars

A competitive exchange among rival companies where prices are successively lowered to undercut competitors, often leading to reduced profit margins.