It is a weighted average only for stock portfolios
It can only be positive
It can never be above the highest individual return
All of the above are true
Answer is Right!
Answer is Wrong!
The correct answer is: D. All of the above are true.
The expected return of a portfolio is a weighted average of the expected returns of the individual assets in the portfolio. The weights are determined by the portfolio’s asset allocation. The expected return of a portfolio can only be positive if the expected returns of the individual assets in the portfolio are all positive. The expected return of a portfolio can never be above the highest individual return in the portfolio.
Here is a more detailed explanation of each option:
- Option A: The expected return of a portfolio is a weighted average of the expected returns of the individual assets in the portfolio. The weights are determined by the portfolio’s asset allocation. For example, if a portfolio is 50% invested in stocks and 50% invested in bonds, the expected return of the portfolio will be the weighted average of the expected returns of stocks and bonds. The weights are determined by the portfolio’s asset allocation. If the portfolio is 50% invested in stocks and 50% invested in bonds, the weights would be 0.5 and 0.5, respectively.
- Option B: The expected return of a portfolio can only be positive if the expected returns of the individual assets in the portfolio are all positive. This is because the expected return of a portfolio is a weighted average of the expected returns of the individual assets in the portfolio. If any of the expected returns of the individual assets are negative, the expected return of the portfolio will also be negative.
- Option C: The expected return of a portfolio can never be above the highest individual return in the portfolio. This is because the expected return of a portfolio is a weighted average of the expected returns of the individual assets in the portfolio. The weights are determined by the portfolio’s asset allocation. If the portfolio is 50% invested in stocks and 50% invested in bonds, the expected return of the portfolio will be the weighted average of the expected returns of stocks and bonds. The weights are determined by the portfolio’s asset allocation. If the portfolio is 50% invested in stocks and 50% invested in bonds, the weights would be 0.5 and 0.5, respectively. The expected return of the portfolio cannot be above the highest individual return in the portfolio, which is the expected return of stocks.