Question

Portfolio expected return and risk A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk: analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are aiso exposed to risk, Portfolio risk refers to the possibelity that an investment portfolio will not generate the investor's expected rate of return. TAnalyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre is an amateur investor who hoids a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: What is the expected return on Andre's stock portfolio? 16.65% 11,10% 8.32.5 14.99%

Answer 1

The expected rate of return is an investment's average prospective profit, while risk is the level of uncertainty of achieving that return, affected by factors such as default risk and interest rate risk. High-risk investments have more volatile actual returns, which can be far above or below the expected return.

Step-by-step explanation:

The expected rate of return on an investment is a key concept for investors, representing the average profit they might hope to achieve, often expressed as a percentage over a certain period. On the other hand, risk pertains to the uncertainty surrounding this expected return, which can manifest in forms such as default risk or interest rate risk. Default risk is the risk that the issuer of a bond or loan will fail to make the required payments, while interest rate risk is the possibility of a sudden increase in market interest rates, which would have made alternative investments more profitable. High-risk investments offer a wide spectrum of potential outcomes, with actual returns fluctuating significantly around the expected rate, while low-risk investments tend to more consistently match their expected rate of return.