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

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.

Expected Return(%) Asset L Asset M Year 2015 2016 2017 2018 2019 2020 14 14 16 17 17 19 20 18 16 14 12 10

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