Assume you are considering a portfolio containing two assets, L am M. Asset L will represent 39% of the dollar value of the portfolio, and asset M Will account for the other 61%. The projected returns over the next 6 years, 2018-2023, for each of these assets are

summarized in the following table:

* Projected_Return *

Year Asset_L Asset_M

2018 4% 19%

2019 14% 19%

2020 15% 15%

2021 17% 14%

2022 17% 13%

2023 20% 10%

A. Calculate the projected portfolio return, r(p) for each of the 6 years

B. Calculate the average expected portfolio return r(p), over the 6-year period

C. Calculate the standard deviation of expected portfolio returns, s(p), over the 6-year period

D. How would you characterize the correlation of returns of the two assets L and M? Positive, Negative or completely un-

E. Discuss any benefits of diversification achieved through creation of the portfolio

A. by combining these two negative correlated assets the overall risk is eliminated

B by combining these two positive....the overall risk is reduced

C. by combining these two neg....the overall risk is increased

D. by combining these two neg...the overall risk is reduced