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question 2 Investments X and Y have the following information: Economic Scenario Probability Returns: X Returns: Y Worst outcome 20% 5% 7% Most likely outcome

question 2

Investments X and Y have the following information:

Economic Scenario

Probability

Returns: X

Returns: Y

Worst outcome

20%

5%

7%

Most likely outcome

60%

15%

14%

Best outcome

20%

25%

21%

Assume that investment X makes up 40% of the value of the portfolio and investment Y is 60%

A. Calculate the portfolios risk for a perfectly positive correlation coefficient.

B. Calculate the portfolios risk for a perfectly negative correlation coefficient.

C. Use your calculations in parts (A) and (B) to explain why correlation is important to take into account when constructing a portfolio

NB. Please show all the workings so that i can follow how you have calculated

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