A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1. Asset Expected Return Expected Standard Deviation Weight A 12% 3% 0.8 B 20% 7% 0.2 Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?
A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1. Asset Expected Return Expected Standard Deviation Weight A 12% 3% 0.8 B 20% 7% 0.2 Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 21P
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- A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1.
|
Expected Return |
Expected Standard Deviation |
Weight |
A |
12% |
3% |
0.8 |
B |
20% |
7% |
0.2 |
Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?
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