To describe the random variable of the portfolio rate of return, the investor needs
A) mean and coefficient of correlation.
B) median and standard deviation.
C) only the expected value.
D) expected value and standard deviation.

Question

Quizplus · Accepted Answer

The portfolio rate of return is a random variable, which means it has a distribution of possible outcomes. To describe the distribution, the investor needs to know the expected value (mean) and the variability (standard deviation). The expected value gives an idea of what return the investor can expect on average, while the standard deviation measures how much the individual returns are likely to vary around the expected value. Therefore, the best choice is D. Median and coefficient of correlation may also provide some useful information, but they are not essential in describing the distribution of the portfolio rate of return.

To Describe the Random Variable of the Portfolio Rate of Return