Question: thank you for you help Question 2 (24 Marks): A portfolio consists of three securities Forge, Petro and Wimco with the following parameters: Expected return

thank you for you help Question 2 (24 Marks): A portfolio

thank you for you help

Question 2 (24 Marks): A portfolio consists of three securities Forge, Petro and Wimco with the following parameters: Expected return (%) Standard deviation (%) Forge 30 19 Petro 45 32 Wimco Corr.: 35 28 Correlation (Cor.): Forge & Petro Petro & Wimco Forge & Wimco +0.40 -0.30 +0.50 2 An investor can either invest in Portfolio 1 or Portfolio 2 in the proportion given below. Portfolio proportions (%) Forge Petro Wimco Portfolio: 1 2 10 55 20 20 70 25 Required: (a) Calculate the expected return and standard deviation for each of the two portfolios (2 Decimal Places). [18 Marks] (b) Explain the diversification effect and the relationship between correlation of assets. [ 6 Marks]

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