You Own a Portfolio Comprised of 4 Stocks and the Economy

question 57

Multiple Choice

You own a portfolio comprised of 4 stocks and the economy has 3 possible states.Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent,regardless of the economic state.Given this,what must be value of the portfolio's variance be?

• A) negative, but not -1
• B) -1.0
• C) 0.0
• D) 1.0
• E) positive, but not +1

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Definitions:

Squared Deviation

The squared difference between a specific value and a comparison value, commonly used in statistics to measure variability.

Average Return

A calculation that represents the typical gain or loss of an investment over a specified period.

Efficiency

The ability of an entity or system to achieve its goals with the least waste of time, effort, or material resources.

Market Prices

The current value at which an asset or service can be bought or sold in a competitive marketplace.