When Stocks with the Same Expected Return Are Combined into a Portfolio

question 51

Multiple Choice

When stocks with the same expected return are combined into a portfolio:

• A)the expected return of the portfolio is less than the weighted average expected return of the stocks.
• B)the expected return of the portfolio is greater than the weighted average expected return of the stocks.
• C)the expected return of the portfolio is equal to the weighted average expected return of the stocks.
• D)there is no relationship between the expected return of the portfolio and the expected return of the stocks.
• E)None of the above.

---

Definitions:

Put Option

A contract in finance that provides the bearer the privilege, but avoids the necessity, to dispense a specific measure of an underlying asset at a particular price during an outlined period.

Options Contract

A contract giving the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price on or before a certain date.

Forward Contract

A financial derivative that represents a personalized agreement to buy or sell an asset at a specific price on a future date.

Futures

Standardized contracts to buy or sell a specific asset at a predetermined price at a specified future date, used for hedging or speculation.