The expected return of a two-fund portfolio: Answers: (one or more answers may b

ID: 3072913 • Letter: T

Question

The expected return of a two-fund portfolio: Answers: (one or more answers may be correct)

a. will always be lower than the expected return of each of the individual funds.

b. will always be somewhere in between the expected return of each of the individual funds.

c. will always be higher than the expected return of each of the individual funds.

d. will always be higher than the expected return of each of the individual funds if the funds have a negative covariance.

e. will always be lower than the expected return of each of the individual funds if the funds have a negative covariance.

f. will always be somewhere in between the expected return of each of the individual funds if the funds have a negative covariance.

correct options is b as expected value of two fund does not depend on covariance but depends on expected value only:

b. will always be somewhere in between the expected return of each of the individual funds.

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