Asked by Jordan Nolte on May 12, 2024
Verified
The expected rate of return of a portfolio of risky securities is ________.
A) the sum of the securities' covariance
B) the sum of the securities' variance
C) the weighted sum of the securities' expected returns
D) the weighted sum of the securities' variance
Expected Rate of Return
The anticipated amount of profit or loss an investment is projected to generate over a specific period, expressed as a percentage.
Portfolio of Risky Securities
A collection of investments that contain a degree of risk, with the expectation of achieving higher returns compared to risk-free assets.
Weighted Sum
A mathematical technique where each component is multiplied by a factor reflecting its importance before their sum is computed.
- Understand the concepts of expected return and risk in portfolio theory.
Verified Answer
SE
Shanel EdmundMay 14, 2024
Final Answer :
C
Explanation :
The expected rate of return of a portfolio of risky securities is the weighted sum of the securities' expected returns. This is because each security's expected return is multiplied by its weight or portion of the portfolio, resulting in the portfolio's overall expected rate of return. Covariance and variance are measures of risk, but do not directly determine the expected rate of return of a portfolio.
Learning Objectives
- Understand the concepts of expected return and risk in portfolio theory.