orrelation, risk, and returnMatt 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 return and risk values calculated for each of the assets are shown in the following table,

V 9% 5% W 12% 10%

.

a.If the returns of assets V and W are perfectly positively correlated (correlation coefficient = +1), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations.

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.

c.If the returns of assets V and W are perfectly negatively correlated (correlation coefficient

=1),

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

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Part 1

a.If the returns of assets V and W are perfectly positively correlated (correlation coefficient = +1), all possible portfolio combinations will have:(Select the best answer below.)

A.a range of expected return between 9 % and 12 % and risk between 10 % and less than 5 % but greater than 0 %.

a range of expected return between 9% and 12% and risk between 10% and less than 5% but greater than 0%.

B.a range of expected return between 9 % and 12 % and risk between 5 % and 10 %.

a range of expected return between 9% and 12% and risk between 5% and 10%.

C.a range of expected return between 9 % and 12 % and risk between 10 % and 0 %.

a range of expected return between 9% and 12% and risk between 10% and 0%.

D.a range of expected return between 5 % and 10 % and risk between 9 % and 12 %.