Use the following information to answer the question(s)below.
Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
-The expected return on the market portfolio is closest to:
A)0%.
B)4%.
C)8%.
D)16%.

Question

Quizplus · Accepted Answer

The expected return on the market portfolio is calculated as the average of the possible returns, weighted by their probabilities. Since the market is equally likely to increase by 24% or decrease by 8%, the expected return is (0.5 * 24%) + (0.5 * -8%) = 8%.

Use the Following Information to Answer the Question(s)below