Theoretically, what is meant by the market portfolio?
A)The market index portfolio similar to the S&P 500 or S&P/TSX Composite
B)The world index portfolio similar to the MSCI AC World index
C)All risky assets in the world in their proper proportions
D)All assets including risk-free assets in their proper proportions

Question

Quizplus · Accepted Answer

The market portfolio theoretically includes all risky assets in the world in their proper proportions. This means that the portfolio includes all assets that have expected returns higher than the risk-free rate, including stocks, bonds, real estate, commodities, etc. The key assumption is that investors hold each asset in proportion to its overall value in the market, creating a well-diversified and efficient portfolio. This definition excludes risk-free assets such as Treasury bills or cash, as they do not have a risk premium and therefore are not part of the market portfolio.

Theoretically, What Is Meant by the Market Portfolio