When Stocks with the Same Expected Return Are Combined into a Portfolio

question 18

Multiple Choice

When stocks with the same expected return are combined into a portfolio:

• A) the expected return of the portfolio is less than the average expected return of the stocks.
• B) the expected return of the portfolio is greater than the average expected return of the stocks.
• C) the expected return of the portfolio is equal to the average expected return of the stocks.
• D) there is no relationship between the expected return of the portfolio and the expected return of the stocks.

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Definitions:

Third Parties

Individuals or entities that are involved in a transaction or agreement but are not one of the principal parties.

Return On Assets

A financial metric used to gauge how efficiently a company uses its assets to generate profit.

Common Equity

The amount of ownership interest in a corporation, represented by common stock, that is available to shareholders after debts and liabilities have been settled.

Debt Financing

The raising of capital through the sale of bonds, bills, or notes to individual and/or institutional investors.