Stock A has an expected return of 20%, and stock B has an expected return of 4%. However, the risk of stock A as measured by its variance is 3 times that of stock B. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return?
A) 20.0%.
B) 4.0%.
C) 12.0%.
D) Greater than 20%.

Question

Quizplus · Accepted Answer

The expected return of a portfolio is the weighted average of the expected returns of the assets that make up the portfolio. If stock A has an expected return of 20% and stock B has an expected return of 4%, and they are combined equally, the portfolio's expected return would be the average of the two, which is (20% + 4%) / 2 = 12%.

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