The portfolio expected return of two investments
A) will be higher when the covariance is negative.
B) will be higher when the covariance is zero.
C) will be higher when the covariance is positive.
D) does not depend on the covariance.

Question

Quizplus · Accepted Answer

The portfolio expected return is calculated as a weighted average of the expected returns of the individual investments and does not depend on the covariance between the investments. Covariance affects the portfolio's risk, not its expected return.

The Portfolio Expected Return of Two Investments