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

question 116

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 weighted average expected return of the stocks.
• B) the expected return of the portfolio is greater than the weighted average expected return of the stocks.
• C) the expected return of the portfolio is equal to the weighted 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.
• E) None of these.

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Definitions:

Fixed Monthly Expenses

Costs that do not vary from month to month, such as rent, insurance, and salaries.

Unit Variable Cost

The cost associated with producing an additional unit of product, which includes materials, labor, and any other expenses that increase with each unit produced.

Monthly Sales

The total revenue generated from sales of goods or services within a month.

Net Operating Income

The total profit of a company after operating expenses are deducted but before taxes and interest are subtracted.