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

(correlation coefficient = 1), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations.

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