QUESTION FIVE The following three assets are being considered in the creation of a two-asset portfolio. Rates of Return State Probability GOV BOND ABC XYZ Boom 0.3 10% 25% 14% Normal 0.45 10% 22% 18% Recession 0.25 10% 12% -20% Required: A. Compute the HPR for XYZ for the state of a recession. (2 Marks) B. Compute the covariance of all two-asset combinations. (10 Marks) C. Compute the correlation coefficient of all two-asset combinations. (6 Marks) D. Which two-asset combination has the least diversification effect if a portfolio was created? (3 Marks) E. Discuss the importance of the final step in the portfolio management process. (4 Marks) QUESTION FIVE The following three assets are being considered in the creation of a two-asset portfolio. Rates of Return State Probability GOV BOND ABC XYZ Boom 0.3 10% 25% 14% Normal 0.45 10% 22% 18% Recession 0.25 10% 12% -20% Required: A. Compute the HPR for XYZ for the state of a recession. (2 Marks) B. Compute the covariance of all two-asset combinations. (10 Marks) C. Compute the correlation coefficient of all two-asset combinations. (6 Marks) D. Which two-asset combination has the least diversification effect if a portfolio was created? (3 Marks) E. Discuss the importance of the final step in the portfolio management process. (4 Marks)