Suppose expected dollar returns to U.S. investors in the United States and Germany are 11.8% and 12.5%,

Question:

Suppose expected dollar returns to U.S. investors in the United States and Germany are 11.8% and 12.5%, respectively. The U.S. standard deviation is 17.8% and the German standard deviation is 30.0%.
a. Calculate the of an equally weighted of these two indices.
b. Calculate the standard deviations of equally weighted portfolios of the two indices under:
i) Perfect positive correlation
ii) Perfect negative correlation
iii) The observed correlation of 0.443.
c. By changing the weights, draw a line between the U.S. and German assets in return-risk (i.e., E[r] - σ space) space for each case.
d. Based on a U.S. risk free rate of 7.2% and the graph in part c), which of the three portfolios identified in b) provides the highest excess return per unit of standard deviation? Expected Return
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