Question

A well-diversified portfolio has an expected return that is _______ the weighted average of the expected...

A well-diversified portfolio has an expected return that is _______ the weighted average of the expected returns of the assets inside of it and a risk level that is _______ the weighted average of the risk levels of the assets inside of it.

Pick one of the choices below to fill in the blanks above in order.

Select one:

Higher Than; Higher Than

Higher Than; Equal To

Higher Than; Lower Than

Equal To; Higher Than

Equal To; Equal To

Equal To; Lower Than

Lower Than; Higher Than

Lower Than; Equal To

Lower Than; Lower Than

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Answer #1

A well-diversified portfolio has an expected return that is Equal To the weighted average of the expected returns of the assets inside of it and a risk level that is Lower Than the weighted average of the risk levels of the assets inside of it.

The expected return of a well diversified portfolio = weighted average of the expected returns of the assets in it

Example for a 2 asset portfolio:

The risk level as measured by the standard deviation that is Lower Than the weighted average of the risk levels of the assets inside of it.

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