You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data.
You have been told that you can create 2 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 2 component assets.
a. What is the average expected return, r, for each asset over the 3-year period?
b. What is the standard deviation, s, for each asset’s expected return?
c. What is the average expected return, rp, for each of the portfolios?
d. How would you characterize the correlations of returns of the 2 assets in each of the portfolios identified in part c?
e. What is the standard deviation of expected returns, sp, for each portfolio?
f. Which portfolio do you recommend? Why?

  • CreatedApril 28, 2015
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