Which of the following are affected by the probability of a state of the economy occurring?
I. expected return of an individual security
II. expected return of a portfolio
III. standard deviation of an individual security
IV. standard deviation of a portfolio
A)I and III only
B)I and II only
C)II and IV only
D)III and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The probability of a state of the economy occurring affects all listed items: the expected return and standard deviation of both individual securities and portfolios. Expected returns are calculated based on the weighted average of possible outcomes, where probabilities are the weights. Standard deviation measures the dispersion of returns, which also depends on the probabilities of different states of the economy.

Which of the Following Are Affected by the Probability of a State