Calculate the expected return of the two-asset portfolio A and B as shown in Table 6.1, assuming funds are invested in the proportions 60 per cent asset A and 40 per cent asset B.

The table below presents the estimated annual cash flow returns for three potential investment projects, Projects 1, 2 and 3 respectively.
Plot the data on a graph. From the graph can you tell which pairs of projects are positively correlated and which are negatively correlated?
Which pairs do you consider would be the best investment combinations, that is which combination pairs will reduce risk?
Annual Cash Flows (£000s)
Year 1 2 3 4 5 Project 1 10 20 15 18 20 Project 2 20 10 18 14 13 Project 3 20 40 30 36 40