You have just been appointed as a fund manager for Gate Way Fund, of which you will be responsible of a portfolio that consists of two assets. The analysts have provided you with the expected returns and standard deviations of returns of which are listed in the table below: Asset AAsset BExpected Return7% 11%Standard Deviation15%21% Calculate the expected return of the portfolio if half is invested in asset A.If the covariance of the two assets is 28, calculate the correlation coefficient of the portfolio.Calculate the variance of the portfolio if the investments in the two assets classes is equal.Calculate the standard deviation of the portfolio if the assets are equally weighted.The two asset portfolio model can be extended to a portfolio with more assets. Explain the implications of this approach for the understanding of portfolio risk and discuss the practical problems of applying the model in this fashion.

Expected return of portfolio is calculated by the weighted average of return of asset return based…

Answered: You have just been appointed as a fund…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 9PROB

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You have just been appointed as a fund manager for Gate Way Fund, of which you will be responsible of a portfolio that consists of two assets. The analysts have provided you with the expected returns and standard deviations of returns of which are listed in the table below:

	Asset A	Asset B
Expected Return	7%	11%
Standard Deviation	15%	21%

Calculate the expected return of the portfolio if half is invested in asset A.
If the covariance of the two assets is 28, calculate the correlation coefficient of the portfolio.
Calculate the variance of the portfolio if the investments in the two assets classes is equal.
Calculate the standard deviation of the portfolio if the assets are equally weighted.
The two asset portfolio model can be extended to a portfolio with more assets. Explain the implications of this approach for the understanding of portfolio risk and discuss the practical problems of applying the model in this fashion.

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