When stocks with the same expected return are combined into a portfolio:
A) the expected return of the portfolio is less than the average expected return of the stocks.
B) the expected return of the portfolio is greater than the average expected return of the stocks.
C) the expected return of the portfolio is equal to the average expected return of the stocks.
D) there is no relationship between the expected return of the portfolio and the expected return of the stocks.

Question

Quizplus · Accepted Answer

The expected return of a portfolio is the weighted average of the expected returns of the individual stocks that make up the portfolio. Therefore, if the stocks have the same expected return, the expected return of the portfolio will be equal to the average expected return of the stocks.

When Stocks with the Same Expected Return Are Combined into a Portfolio