Question: The two assets, X and Y, whose returns are shown in the multivariate distribution to the right, have the following expected returns, variances, covariance, and

The two assets, X and Y, whose returns are shown in the multivariate distribution to the right, have the following expected returns, variances, covariance, and correlation: mX = 13.00%; mY = 12.50%; sX = 3.317%; sY = 2.500%; Cov(X,Y) = -.0004; rXY = -.45.

		Y1	Y2	P(X=xi)
		10%	15%
X1	5%	.1	0	.1
X2	10%	0	.2	.2
X3	15%	.4	.3	.7
P(Y=yi)		.5	.5

a. What is the expected return of a portfolio that is 50% Asset X and 50% Asset Y?

What is the standard deviation of a portfolio that is 50% Asset X and 50% Asset Y?

b. What is the expected return of a portfolio that is 75% Asset X and 25% Asset Y?

What is the standard deviation of a portfolio that is 75% Asset X and 25% Asset Y?

c. Which of the preceding portfolios ((a) or (b)) is better? Why?

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