When stocks with the same expected return are combined into a portfolio:
A)the expected return of the portfolio is less than the weighted average expected return of the stocks.
B)the expected return of the portfolio is greater than the weighted average expected return of the stocks.
C)the expected return of the portfolio is equal to the weighted 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.
E)None of the above.

Question

Quizplus · Accepted Answer

When stocks with the same expected return are combined into a portfolio, the expected return of the portfolio is equal to the weighted average expected return of the stocks. This is because the expected return of the portfolio is a weighted average of the expected returns of the individual stocks in the portfolio, and the weights are determined by the proportion of each stock's value in the portfolio. Therefore, the expected return of the portfolio should be the same as the weighted average expected return of the stocks.

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