You Are Assigned the Task of Computing the Expected Return

question 97

Multiple Choice

You are assigned the task of computing the expected return on a portfolio containing several individual stocks.Which one of the following statements is correct concerning this task?

• A)The expected rate of return on the portfolio must be positive.
• B)The arithmetic average of the betas for each security held in the portfolio must equal 1.0.
• C)The portfolio beta must be 1.0.
• D)The summation of the return deviation from the portfolio expected return for each economic state must equal zero.
• E)The standard deviation of the portfolio must equal 1.0.

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Definitions:

Absolute Advantage

The ability of a country or entity to produce a good using fewer resources than another producer, indicating higher efficiency.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than its competitors, leading to more efficient trade benefits.

Opportunity Cost

The forfeiting of possible gains that could be obtained from exploring other options, when one is chosen.

Absolute Advantage

The capacity for a nation, person, corporation, or area to manufacture a product or render a service at a more affordable per-unit expense than what any other party can achieve.