For a potential investment of $5,000,a portfolio has an EMV of $1,000 and a standard deviation of $100.What is the rate of return?
A)5%
B)10%
C)20%
D)50%

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the following formula:

Rate of return = (EMV - Initial investment) / Initial investment

Here, EMV = $1,000 and initial investment = $5,000.

Substituting these values, we get:

Rate of return = (1,000 - 5,000) / 5,000 = -0.8 or -80%

This means that the portfolio has lost 80% of its initial value, which is not a desirable outcome for an investment.

Therefore, the best choice would be to not invest in this portfolio.

For a Potential Investment of $5,000,a Portfolio Has an EMV