The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? What can be said about the portfolio that is represented by any point along the efficient frontier of risky investment portfolios? and What is meant by ‘two-fund separation’? ‘The capital asset pricing model tells us that a security with a beta of 2 will be expected to yield a return twice that of a security whose beta is 1.’ Is this statement true?

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter6: Risk And Return
Section: Chapter Questions
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Question #1.

  • ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct?
  • What can be said about the portfolio that is represented by any point along the efficient frontier of risky investment portfolios? and What is meant by ‘two-fund separation’?
  • ‘The capital asset pricing model tells us that a security with a beta of 2 will be expected to yield a return twice that of a security whose beta is 1.’ Is this statement true?
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