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If a portfolio has a positive weight for each asset, can the expected return on the...

If a portfolio has a positive weight for each asset, can the expected return on the portfolio be greater than the return on the asset in the portfolio that has the highest return? Can theexpected return on the portfolio be less that the return on the asset in the portfolio with the lowest return? Explain.

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Expert Solution

The answer to both the question is No because the expected return of the portfolio is a weighted average of the returns from its assets, so the expected return must be less than the returns from the largest asset andg than the returns from the smallest asset.

  • To calculate the expected return of a portfolio, you need to know the expected return and weight of each asset in a portfolio.
  • The figure is found by multiplying each asset’s weight with its expected return, and then adding up all those figures at the end.
  • These estimates are based on the assumption that what we have seen in the past is what we can expect in the future, and ignores a structural view on the market.

jeff jeffy answered 2 years ago
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