You have a portfolio of assets with the following data:

Expected Return

Year Asset A Asset B Asset C

2019 12% 16% 12%

2020 14% 14% 12%

2021 16% 12% 16%

Standard Deviation 2% 2% 2%

Standard deviation portfolio A/B=0%

A/C=2%

You have created 2 portfolios of AB and AC with 50% in each asset within the portfolio.

1. What is the expected return of EACH asset over the 3 year period?
2. What is the expected return of each portfolio?
3. Describe the correlations of returns of the two assets within the portfolios!
4. Which portfolio do you recommend?