Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected returns and standard deviations calculated for each of the assets are shown in the following table. Asset Expected return, r Risk (standard deviation), r V 8% 5% W 13 10

b. If the returns of assets V and W are uncorrelated (correlation coefficient = 0), describe the approximate range of (1) expected return and (2) risk associated with all possible portfolio combinations.

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