Should asset 3 be selected for the portfolio discussed in question 3? Its expected return is 0.12 and its measure of risk is 0.20. The correlation between its returns and those of asset 1 is 0, and between its returns and those of asset 2 is −0.20. Portfolio shares are 35 percent for asset 1 and asset 2 and 30 percent for asset 3.

Data from question 3

Calculate the expected return and risk (standard deviation of returns) on a portfolio consisting of two assets. Asset 1 has an expected return of 0.09 and a standard deviation of returns of 0.08. For asset 2, they are 0.13 and 0.14, respectively.

The correlation coefficient of the returns on asset 1 and asset 2 is 0.5.

The portfolio share of each asset is 50 percent.