An Investor Decides to Split His Money Equally Among Four

question 30

Multiple Choice

An investor decides to split his money equally among four securities with the following expected returns: 10%, 15%, 23%, and 26%. The expected return on his portfolio is

• A)18.5%.
• B)15.2%.
• C)14.8%.
• D)This cannot be determined without knowing the weights invested in each security.

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Definitions:

Premium

An amount paid in addition to the standard price or cost, often in exchange for a service, insurance coverage, or higher-quality good.

Bondholders

Individuals or entities that hold debt securities issued by corporations or governmental bodies, expecting interest payments and the return of principal.

Issuing Corporation

A company or entity that offers its securities for sale to investors to raise capital.

Interest Expense

The cost incurred by an entity for borrowed funds, reflected as a charge against earnings on the income statement.