The expected return of a portfolio of two investments will be equal to the sum of the expected returns of the two investments plus twice the covariance between the investments.

Question

Quizplus · Accepted Answer

The expected return of a portfolio of two investments is actually the weighted average of the expected returns of the two investments, not the sum of the expected returns plus twice the covariance between the investments. Covariance affects the portfolio's risk, not its expected return.

The Expected Return of a Portfolio of Two Investments Will