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Assume that, at the moment, all of your assets are invested in asset A with the following return (r) and risk () characteristics: E [rA]
Assume that, at the moment, all of your assets are invested in asset A with the following return (r) and risk () characteristics: E [rA] = 10% and A = 10%. Another asset B becomes available. The characteristics of B are as follows: E [rB ] = 20% and B = 25%. Furthermore, the correlation of As and Bs return patterns is 1. By relocating your portfolio to include some of asset B, how much additional return could you expect to receive if you want to maintain your portfolios risk at = 10%?
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