Referring to Problem 5.6, what would happen if you constructed a portfolio consisting of assets A, B,

Question:

Referring to Problem 5.6, what would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or enhance return?

Data from Problem 5.6

You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data.

Projected Return Year Asset A Asset B Asset C 16% 12% 2018 12% 14% 14% 14% 2019 16% 12% 16% 2020

You have been told that you can create two portfolios—one consisting of assets A and B and the other consisting of assets A and C—by investing equal proportions (50%) in each of the two component assets.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...