Which of the following affect the expected rate of return for a portfolio?
I. weight of each security held in the portfolio
II. the probability of various economic states occurring
III. the variance of each individual security
IV. the expected rate of return of each security given each economic state
A)I and IV only
B)II and IV only
C)II, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The weight of each security held in the portfolio (I) affects the expected rate of return as it determines the overall exposure of the portfolio to each security. The probability of various economic states occurring (II) affects the expected rate of return as it determines the likelihood of each security performing well or poorly. The expected rate of return of each security given each economic state (IV) affects the expected rate of return as it provides insight into how the security will perform under different economic conditions. The variance of each individual security (III) affects the risk of the portfolio, but not necessarily the expected rate of return. Therefore, the best choice is D, I, II, and IV only.

Which of the Following Affect the Expected Rate of Return