What is Blume's formula used to calculate?

Blume's formula is actually designed to provide an adjustment for the estimation of a portfolio's beta, which is a measure of its sensitivity to market movements. The formula is particularly useful in the context of multi-period investment horizons because it helps investors account for changes in the risk profile over time.

When using Blume's formula, an investor can modify a portfolio's beta to better reflect its expected performance over a longer timeframe. This adjustment can facilitate more accurate expected returns when considered alongside the capital asset pricing model (CAPM). Therefore, while the choice of expected portfolio return is significant in a broader investment context, Blume's formula itself is more specifically focused on the calculation of portfolio beta.

In this case, while expected portfolio return is an important concept, the correct answer illustrates that Blume's formula is primarily used to calculate portfolio beta rather than directly determining expected returns.