Assume that you are an investment consultant. You have been asked for your advice in selecting a portfolio of assets. The following data has been given to you:

Expected return

Year Asset X Asset Y Asset Z

2018 12% 18% 12%

2019 16% 16% 16%

2020 18% 12% 18%

You have been asked to create two portfolios, one consisting of assets X and Y, and the other consisting of assets X and Z, by investing equal proportions (50%) in each of the two component assets.

Required:

1. In order to provide your advice in selecting a portfolio of assets, perform the necessary calculations on each asset (i.e. Assets X, Y and Z), and on the two portfolios (i.e. Portfolio XY and Portfolio XZ). (14 marks)

In reference to your findings in part (a), recommend the preferred portfolio to invest in. Justify your recommendation clearly and in detail. (11 marks)