Question
Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 62% of the dollar value of the portfolio, and
Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 62% of the dollar value of the portfolio, and Asset 2 will account for the other 38%. The projected returns over the next 6 years, 20212026, for each of these assets are summarized in the following table: LOADING....
a. Calculate the projected portfolio return, rp, for each of the 6 years.
b. Calculate the average expected portfolio return, rp, over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period.
d. How would you characterize the correlation of returns of the assets 1 and 2?
e. Discuss any benefits of diversification achieved through creation of the portfolio.
| Projected Return | ||||
| Year | Asset 1 | Asset 2 | ||
| 2021 | 9% | 31% | ||
| 2022 | 13% | 5% | ||
| 2023 | 25% | 7% | ||
| 2024 | 3% | 20% | ||
| 2025 | 10% | 35% | ||
| 2026 | 33% | 16% | ||
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