ECONOMICS
RISK AND RETURN
Question
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10.1%


11.5%


9.6%


8.7%

Detailed explanation1: The expected return of a portfolio (Rport) is simply a weighted average of the expected returns of the individual investments. Given that the expected return is the same for all the portfolios, Joe will opt for the portfolio that has the lowest risk as measured by the portfolioâ€™s standard deviation.
Detailed explanation2: Expected Return for a Two Asset Portfolio The expected return of a portfolio is equal to the weighted average of the returns on individual assets in the portfolio.
Detailed explanation3: A market portfolio is a theoretical bundle of investments that includes every type of asset available in the investment universe, with each asset weighted in proportion to its total presence in the market. The expected return of a market portfolio is identical to the expected return of the market as a whole.