Question: Consider two assets, A and B. A earns +4%,5%, or +3%, in scenarios 1,2 , and 3 . B earns 5%,+3%, or +4%, in scenarios

Consider two assets, A and B. A earns +4%,5%, or +3%, in scenarios 1,2 , and 3 . B earns 5%,+3%, or +4%, in scenarios 1,2, and 3 . Each scenario is equally likely. Compute the expected rates of return and SD for each asset, A and B. Now, consider a portfolio of assets A and B called AB, where the investor holds fraction 62% of his portfolio in A and fraction (1-62\%) in B. Compute the standard deviation of AB. Compare the new standard deviation to that of each asset's individual standard deviation. What was the change in standard deviation between asset A and portfolio AB ? StDev(AB) - StDev(A)

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