# Question

Assume you are considering a portfolio containing 2 assets, L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The expected returns over the next 6 years, 2015–2020, for each of these assets are summarized in the following table.

a. Calculate the expected portfolio return, rp, for each of the 6 years.

b. Calculate the average expected portfolio return, rp, over the 6-year period.

c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period.

d. How would you characterize the correlation of returns of the assets L and M?

e. Discuss any benefits of diversification achieved through creation of the portfolio.

a. Calculate the expected portfolio return, rp, for each of the 6 years.

b. Calculate the average expected portfolio return, rp, over the 6-year period.

c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period.

d. How would you characterize the correlation of returns of the assets L and M?

e. Discuss any benefits of diversification achieved through creation of the portfolio.

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