You Own a Portfolio of 5 Stocks and Have 3

question 67

Multiple Choice

You own a portfolio of 5 stocks and have 3 expected states of the economy.You have twice as much invested in Stock A as you do in Stock E.How will the weights be determined when you compute the rate of return for each economic state?

• A) The weights will be the probability of occurrence for each economic state.
• B) Each stock will have a weight of 20 percent for a total of 100 percent.
• C) The weights will decline steadily from Stock A to Stock E.
• D) The weights will be based on the amount invested in each stock as a percentage of the total amount invested.
• E) The weights will be based on a combination of the dollar amounts invested as well as the economic probabilities.

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Definitions:

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The tendency to overestimate the likelihood of highly unlikely events.

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A broad group of diseases involving abnormal cell growth with the potential to invade or spread to other parts of the body.