Share A has an expected return of 20%, and share B has an expected return of 4%.However, the risk of share A as measured by its variance is 3 times that of share B.If the two shares are
Combined equally in a portfolio, what would be the portfolio's expected return?
A)4%
B)12%
C)20%
D)Greater than 20%
E)Need more information to answer.

Question

Quizplus · Accepted Answer

Since the two shares are combined equally in the portfolio, the portfolio's expected return can be calculated as [(0.5 * 20%) + (0.5 * 4%)] = 12%. Hence, the best choice is B.

Share a Has an Expected Return of 20%, and Share