When a security is added to a portfolio the appropriate return and risk contributions are:
A)these both can not be measured.
B)the expected return and the variance.
C)the historical return and the beta.
D)the expected return and the beta.
E)the expected return of the asset and its standard deviation.

Question

Quizplus · Accepted Answer

When a security is added to a portfolio, the appropriate return and risk contributions can be measured using the expected return and the beta. The expected return measures the potential return of the investment, while beta measures the investment's sensitivity to market fluctuations. Both of these factors are crucial in determining the risk and return contributions of an asset to a portfolio. Historical return and variance can provide useful information, but they may not necessarily be indicative of future performance. Similarly, the standard deviation of an asset's returns measures its risk, but it does not provide information about how the asset behaves in relation to the market.

When a Security Is Added to a Portfolio the Appropriate