Lecture 6: Risk and Diversification Homework Assignment - Portfolio Risk 1. Julie and David Homemaker have two investment alternatives. The investment alternatives are: Expected Rate of Return Standard Deviation Investment 0.07 0.04 Investment Y 0.12 0.10 a. Correlation coefficient between A and B is 0.30. You only need to complete steps B and Con question 1. Find the expected value, the standard deviation, and variance of the portfolio if Julie and David invest 70% in investment Y and 30% in investment X. (This was done for you in the lecture video as a guide.) b. Find the expected value, standard deviation, and variance of the portfolio If Julle and David invest 70% in investment X, and 30% in investment Y. How do the results compare to A? Why are they different? Suppose the correlation coefficient decreases to -0,30. What are the impacts of portfolio risks in c. A and B? 2. Jennifer and Bill McDonald have three investment alternatives. The investment alternatives are: Investment A 0.10 Investment B 0.14 Investment C 0.18 Expected Rate of Return Standard Deviation 0.04 0.10 0.18 The correlation coefficient between investments A and B is 0.30. The correlation coefficient between investments A and C is -0.20. The correlation coefficient between investments B and Cis-0.30. a. Find the expected value, the standard deviation and variance for the following portfolios of investments Portfolio Percent Investment in A Percent Investment in B Percent Investment in 20 60 1 20