Question

4. In calculating expected return of an equally weighted portfolio we assign ______________ probability for return of each asset in the portfolio

Select one:

a. Equal

b. Zero

c. 100%

d. 50:50

Answer 1

Answer:- Option (a):- Equal

Explanation:- Expected return = Sum of all the multiplication of probabilities of each asset with their respective returns.

Expected return = (p₁ * r₁) + (p₂ * r₂) + ………… + (p_n * r_n)

p_i = Probability of each return

r_i = Rate of return with different probability

i = number of periods

So, if portfolio is equally weighted, then probability for return of each asset in the portfolio will be assigned as equal because each asset with equal weights (as it is equally weighted portfolio) will have equal probability of occurence. All assets in the portfolio have the equal chance of occurence.