You have a portfolio of two assets with expected rate of return on asset 1 is...

Transcribed Image Text:

You have a portfolio of two assets with expected rate of return on asset 1 is 6%, expected rate of return on asset two is 8%, and standard deviation on asset one is 10%, and standard deviation on asset two is 20%. Also take the correlation between the two assets to be 50.0% a. Assume the portfolio to be equally weighted, what is the portfolio expected return, variance and standard deviation? b. What is the portfolio expected return, variance and standard deviation if correlation is zero? c. You add a third asset to the portfolio in (b). That asset is correlated only with asset 1, with expected rate of return on asset three is 13%, standard deviation of 20% and correlation between asset 1 and asset three is 25%. This is the only correlation that is different than zero. What is the portfolio return, variance and standard deviation now? Assume the new portfolio is equally weighted. d. You replace asset 2 with asset X, that has the same standard deviation as asset 1=10%, with the expected rate of return on X is 8%, and correlation between asset 1 and X to be 25%. What is the portfolio return, variance and standard deviation now? Assume the new portfolio is equally weighted. You have a portfolio of two assets with expected rate of return on asset 1 is 6%, expected rate of return on asset two is 8%, and standard deviation on asset one is 10%, and standard deviation on asset two is 20%. Also take the correlation between the two assets to be 50.0% a. Assume the portfolio to be equally weighted, what is the portfolio expected return, variance and standard deviation? b. What is the portfolio expected return, variance and standard deviation if correlation is zero? c. You add a third asset to the portfolio in (b). That asset is correlated only with asset 1, with expected rate of return on asset three is 13%, standard deviation of 20% and correlation between asset 1 and asset three is 25%. This is the only correlation that is different than zero. What is the portfolio return, variance and standard deviation now? Assume the new portfolio is equally weighted. d. You replace asset 2 with asset X, that has the same standard deviation as asset 1=10%, with the expected rate of return on X is 8%, and correlation between asset 1 and X to be 25%. What is the portfolio return, variance and standard deviation now? Assume the new portfolio is equally weighted.

Answer rating: 100% (QA)

The detailed ... View the full answer