The measure of risk in a portfolio selection problem is called:
A) the covariance of the return.
B) the variance of the return.
C) the expected return.
D) decreasing marginal return.
E) None of the choices is correct.

Question

Quizplus · Accepted Answer

The variance of the return measures the dispersion of possible returns around the expected value. A higher variance indicates a higher level of risk, as the portfolio's returns are more uncertain and could potentially be further from the expected value. Therefore, the measure of risk in a portfolio selection problem is the variance of the return.

The Measure of Risk in a Portfolio Selection Problem Is