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ection B (20 marks each) 4 (a) Do calculations to show the effect on portfolio risk of perfect positive and perfe negative correlation between the
ection B (20 marks each) 4 (a) Do calculations to show the effect on portfolio risk of perfect positive and perfe negative correlation between the returns on the investments in a portfolio consisting of Investments A and B below. (Assume that Investment A makes up 40% of the value of the portfolio and investment B 60%.) Investment A Return Probability Return Probability Investment B Worst outcome Most likely outcome Best outcome 5% 15% 25% 0.2 0.6 0.2 7% 14% 21% 0.2 0.6 0.2 using your calculations in (a) to illustrate your answer, how a fund manager take account of correlation in constructing a portfolio to increase the value of the (b) E xplain, can portfolio . (a) Describe and illustrate the following
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