Final answer:
The statement is true; a value-weighted portfolio's return is indeed the weighted average of the returns on its assets, weighted by their market values. High-risk assets within such a portfolio should, theoretically, offer higher returns to compensate for their increased risk levels, following the risk-return tradeoff principle.
Step-by-step explanation:
The statement that the rate of return on a value-weighted portfolio is equal to the weighted average of the returns on the component assets, where the weights are equal to the proportionate values of the assets, is true. A value-weighted portfolio means that each asset in the portfolio is weighted in proportion to its market value relative to the total market value of all the assets in the portfolio. The return on the portfolio is calculated by taking the products of the individual asset returns and their respective weights and summing them up. Investors often look for the balance between expected return and the degree of risk involved. High-risk assets such as stocks are expected to provide higher returns to justify the increased risk. A value-weighted approach to portfolio composition helps in ensuring that an investor's exposure to risk is directly correlated to the potential for still higher returns, thus adhering to the fundamental tradeoff between risk and return.