Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 38 % of the dollar value of the portfolio, and asset 2 will account for the other 62 %.

Assume that the portfolio is rebalanced at the end of each year. The expected returns over the next 6 years, 2021--2026, for each of these assets are summarized in the following table:

Projected Return Year Asset L Asset M 2021 -9 33 2022 14 7 2023 25 -9 2024 4 20 2025 -9 35 2026 33 -17

a. Calculate the expected portfolio return,r Subscript p,for each of the 6 years.

b. Calculate the average expected portfolio return,r overbar Subscript p, over the 6-year period.

c. Calculate the standard deviation of expected portfolio returns,s Subscript p, over the 6-year period.

d. Assume that asset 1 represents 62 % of the portfolio and asset 2 is 38 %.

Calculate the average expected return and standard deviation of expected portfolio returns over the 6-year period.

e. Compare your answers in part d to the answers from parts b and c.

----------------------------------------

a.

The expected portfolio return, r Subscript p, for 2021 is ____%. (Round to two decimal places.)

The expected portfolio return,r Subscript p, for 2022 is _____%. (Round to two decimal places.)

The expected portfolio return, r Subscript p, for 2023 is______% (Round to two decimal places.)

The expected portfolio return,r Subscript p, for 2024 is______% (Round to two decimal places.)

The expected portfolio return,r Subscript p, for 2025 is______%(Round to two decimal places.)

The expected portfolio return,r Subscript p for 2026 is_______% (Round to two decimal places.)

b. The average expected portfolio return,r overbar Subscript p,over the 6-year period is _______%. (Round to two decimal places.)

c. The standard deviation of expected portfolio returns,s Subscript p,over the 6-year period is _______%. (Round to three decimal places.)

d. If asset L represents 62 % of the portfolio and asset M 38 %,the average expected portfolio return, r overbar Subscript p,over the 6-year period is _______%(Round to two decimal places.)

If asset L represents 62 % of the portfolio and asset M 38 %, the standard deviation of expected portfolio returns, s Subscript p, over the 6-year period is ______%. (Round to three decimal places.)

e. Compare your answers in part d to the answers from parts b and c.

Which of the following statements is correct?(Select the best choice below.)

A.Compared to part d, in parts b and c we are getting a higher return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the riskier asset.

B.Compared to part d, in parts b and c we are getting a lower return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the riskier asset.

C.Compared to part d, in parts b and c we are getting a higher return at the cost of a lower standard deviation. This occurs because we are investing more heavily in the riskier asset..

D. Compared to part d, in parts b and c we are getting a higher return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the less risky asset.