You own a portfolio comprised of 4 stocks and the economy has 3 possible states.Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent,regardless of the economic state.Given this,what must be value of the portfolio's variance be?
A) negative, but not -1
B) -1.0
C) 0.0
D) 1.0
E) positive, but not +1

Question

Quizplus · Accepted Answer

Since the expected rate of return is the same across all economic states, the portfolio's variance must be zero. This indicates that there is no variability in the portfolio's returns and that the returns are the same in all economic states.

You Own a Portfolio Comprised of 4 Stocks and the Economy