Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 45% of the dollar value of the portfolio, and asset M will account for the other 55%. The projected returns over the next six years, 20182023, for each of these assets are summarized in the following table.

	Projected Return (%)
Year	Asset L	Asset M
2018	14%	21%
2019	13%	18%
2020	15%	15%
2021	17%	15%
2022	16%	11%
2023	20%	11%

a.Use an Excel spreadsheet to calculate the projected portfolio return, r_p, for each of the six years.

b. The average expected portfolio return, r_p, over the 6-year period is (blank) %

c. The standard deviation of expected portfolio returns over the 6-year period is (blank) %

d. How would you characterize the correlation of returns of the two assets L and M? (neg. pos. or un-correlated)

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

A. By combining these two negatively correlated assets, the overall portfolio risk is increased.

B. By combining these two positively correlated assets, the overall portfolio risk is reduced.

C. By combining these two negatively correlated assets, the overall portfolio risk is reduced.

D.By combining these two negatively correlated assets, the overall portfolio risk is eliminated.