What Is the Expected Return of the Three-Stock Portfolio Described

question 16

Multiple Choice

What is the expected return of the three-stock portfolio described below? $\begin{array}{lcc}\text { Common Stock } & \text { Market Value } & \text { Expected Return } \\\hline\text { Lupko Inc. } & 50,000 & 13 \% \\\text { Mackey Co. } & 25,000 & 9 \% \\\text { Nippon Inc. } & 75,000 & 14 \%\end{array}$

• A) 12.04%
• B) 12.83%
• C) 13.07%
• D) 15.89%
• E) 17.91%

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Definitions:

Efficient Market Hypothesis

A theory stating that share prices reflect all available information, making it impossible to consistently achieve higher returns.

Technical Analysis

The study of past market data, primarily price and volume, to forecast future price movements without considering the underlying financial condition of the company.

Price-to-earnings Ratios

A valuation ratio of a company's current share price relative to its per-share earnings, used to evaluate if a stock is over or undervalued.

Price-to-book Ratios

A valuation metric comparing a company's stock price to its book value per share, helping investors assess if a stock is undervalued or overvalued.