What Is the Expected Return on a Portfolio That Will

question 48

Multiple Choice

What is the expected return on a portfolio that will decline in value by 13 percent in a recession, will increase by 16 percent in normal times, and will increase by 23 percent during boom times if each scenario has equal likelihood?

• A)8.67 percent
• B)13.00 percent
• C)13.43 percent
• D)17.33 percent Expected return =

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Definitions:

Portfolio Risk

The potential for loss due to the variability of returns from the various securities in a portfolio.

Expected Return

The anticipated return on an investment, based on historical data or probability analysis, over a specific period.

Effective International Diversification

A strategy of investing across various countries and asset classes to reduce risk and potentially enhance returns.

Foreign Stocks

Shares of companies based outside the investor's home country, offering diversification benefits in a portfolio.