Question
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%
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 portfolio’s risk for a perfectly positive correlation coefficient.
B. Calculate the portfolio’s 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
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The detailed answer for the above question is provided below A Calculate the portfolios risk for a perfectly positive correlation coefficient The risk ...
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Essentials of Business Communication
Authors: Mary Ellen Guffey, Dana Loewy
9th edition
978-0132555500, 132555506, 978-1111821227
