Question
Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 45% of the dollar value of theportfolio, and asset
Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 45% of the dollar value of theportfolio, and asset M will account for the other 55%. 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 | 15% | 19% | ||
2019 | 14% | 18% | ||
2020 | 17% | 15% | ||
2021 | 16% | 153% | ||
2022 | 16% | 12% | ||
2023 | 19% | 9% |
.
a. Calculate the projected portfolio return, rp, for each of the 6 years.
b. Calculate the average expected portfolioreturn, 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 two assets L and M?
e. Discuss any benefits of diversification achieved through creation of the portfolio.
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