Suppose a Portfolio Had an Arithmetic Average Return of 8

question 31

Multiple Choice

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

• A)At least one of the 4 years produced an annual rate of return of 8 percent.
• B)If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent.
• C)The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent.
• D)If the standard deviation of the portfolio is zero,then the geometric average return must also be zero.
• E)The holding period return must be less than 8 percent.

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Definitions:

Uncompensated Cost

Costs that occur when an action has effects, positive or negative, on third parties without those parties being compensated.

Social Cost

The total cost of an activity, including both private costs borne by the producer and external costs suffered by others.

External Costs

Costs incurred by someone who does not participate directly in a transaction or activity, often relating to environmental or societal impacts.

Socially Optimal

A condition or point at which the total benefits to society are maximized, often considered in the context of production or distribution of goods and services.