Question
Pretend your portfolio is 100% invested in US Large Cap Equities. You are seeking to achieve an annual portfolio return around 7.0%. You want to
Pretend your portfolio is 100% invested in US Large Cap Equities. You are seeking to achieve an annual portfolio return around 7.0%. You want to diversify your portfolio and reduce your portfolio risk. Select three (3) asset classes that will help you achieve your two portfolio goals, namely a 7% return and less than a 16% standard deviation of portfolio returns. For each asset class, provide two (2) reasons why you selected the asset class.
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| Expected | Expected |
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| Annual | Annual |
| Asset Class | Asset Class | Return | Standard Deviation |
| A | US Large Cap Eq | 7.00% | 16.0% |
| B | Undisclosed | 7.50% | 20.0% |
| C | Undisclosed | 8.25% | 22.0% |
| D | Undisclosed | 2.50% | 6.0% |
| E | Undisclosed | 4.50% | 10.0% |
| F | Undisclosed | 2.00% | 18.0% |
| G | Undisclosed | 5.00% | 8.0% |
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| Correlation Matrix |
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| Asset Class |
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| A | 1.00 |
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| B | 0.92 | 1.00 |
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| C | 0.78 | 0.77 | 1.00 |
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| D | 0.00 | 0.00 | 0.00 | 1.00 |
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| E | 0.60 | 0.60 | 0.55 | 0.00 | 1.00 |
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| F | -0.10 | -0.10 | -0.10 | -0.25 | -0.10 | 1.00 |
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| G | -0.30 | -0.35 | -0.35 | 0.10 | -0.15 | 0.25 | 1.00 |
| Asset Class | A | B | C | D | E | F | G |
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Financial and Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
13th edition
1285866304, 978-1285866307
