Exercise 4 What is the expected risk (standard deviation) and return for this three asset portfolio? Asset Weight Expected Return Standard deviation A 25% 4% 8% B 40% 5% 12% C 35% 7% 15% Correlation A B C A 1.00 -0.25 0.65 B -0.25 1.00 0.75 C 0.62 0.75 1.00 1. Who was Yogi Berra? What were five of his famous sayings? 2. Explain why it is important to understand the risk tolerance of an investor. 3. Explain what needs adjusting if an investors expectations are greater than their risk tolerance . 4. Explain why manager/stock selection is the least important part of the investment process, but the most time consuming for investors 5. What are investors presumed to be? 6. Explain what is meant by the principle of transitivity 7. Which are investors concerned more about? Making money or losing money? 8. Explain why diversification is important when investing 9. Explain what is meant by mean-variance investing 10. Exercise 4 BUT the weights are: 15%, 60%, 25%, respectively. 11. Exercise 4 BUT the standard deviations are: 18%, 22%, 36% respectively 12. Exercise 4 BUT the returns .are: 12%, 25%, 18%, respectively