Consider a Portfolio Comprised of Four Risky Securities

question 65

Multiple Choice

Consider a portfolio comprised of four risky securities.Assume the economy has three states with varying probabilities of occurrence.Which one of the following will guarantee that the portfolio variance will equal zero?

• A)The portfolio beta must be 1.0.
• B)The portfolio expected rate of return must be the same for each economic state.
• C)The portfolio risk premium must equal zero.
• D)The portfolio expected rate of return must equal the expected market rate of return.
• E)There must be equal probabilities that the state of the economy will be a boom or a bust.

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