Question: Consider the following three assets: Asset As expected return is 5% and return standard deviation is 25%. Asset Bs expected return is 8% and return

Consider the following three assets:

Asset As expected return is 5% and return standard deviation is 25%.

Asset Bs expected return is 8% and return standard deviation is 32%.

Asset C is a risk-free asset with 2% return.

The correlation between assets A and B is 0.3.

A) Constructing a portfolio from assets A and B such that the expected return of the portfolio equals 3%, find the portfolio weights of assets A and B and compute the return standard deviation of the portfolio.

(a) weight = 5/3, Std(rp) = 0.48

(b) weight = 5/3, Std(rp) = 0.20

(d) weight = 8/3, Std(rp) = 0.66

B). Constructing a portfolio from assets A and C such that the expected return of the portfolio equals 10%, find the portfolio weights of assets A and C and compute the return standard deviation of the portfolio.

(a) weight = 1/3, Std(rp) = 0.48 (b) weight = 1/3, Std(rp) = 0.20 (c) weight = 8/3, Std(rp) = 0.04 (d) weight = 8/3, Std(rp) = 0.67

Thank you!

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