Question
You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data: Projected Return Year Asset
You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data:
Projected Return |
| |||
Year | Asset A | Asset B | Asset C | |
2018 | 14% | 18% | 14% | |
2019 | 16% | 16% | 16% | |
2020 | 18% | 14% | 18% |
You have been told that you can create two portfoliosone consisting of assets A and B and the other consisting of assets A and Cby investing equal proportions (50%) in each of the two component assets. a. What is the average expected return, r, for each asset over the 3-year period? b. What is the standard deviation, s, for each asset's expected return? c. What is the average expected return, rp, for each of the the portfolios? d. How would you characterize the correlations of returns of the two assets making up each of the portfolios identified in part c? e. What is the standard deviation of expected returns, sp, for each portfolio? f. Which portfolio do you recommend? Why? a. What is the average expected return, r, for each asset over the 3-year period? Asset A: enter your response here% (Round to one decimal place.) Asset B: enter your response here% (Round to one decimal place.) Asset C: enter your response here% (Round to one decimal place.) b. What is the standard deviation, s, for each asset's expected return? Asset A: enter your response here% (Round to two decimal places.) Asset B: enter your response here% (Round to two decimal places.) Asset C: enter your response here% (Round to two decimal places.) c. What is the average expected return, rp, for each of the two portfolios? Portfolio AB: enter your response here% (Round to one decimal place.) Portfolio AC: enter your response here% (Round to one decimal place.) d. How would you characterize the correlations of returns of the 2 assets making up each of the 2 portfolios identified in part c? Portfolio AB is perfectly negatively positively un- correlated, while Portfolio AC is perfectly negatively positively un- correlated.(Select from the drop-down menus.) e. What is the standard deviation of expected returns, sp, for each portfolio? Portfolio AB: enter your response here% (Round to two decimal places.) Portfolio AC: enter your response here% (Round to two decimal places.) f. Which portfolio do you recommend? Why?(Select the best choice below.) A. Portfolio AC is preferred since it provides the same return as Portfolio AB but with less risk, as measured by the standard deviation. B. Portfolio AB is preferred since it provides the same return as Portfolio AC but with less risk, as measured by the standard deviation. C. Portfolio AB is preferred since it provides greater return than Portfolio AC but with more risk, as measured by the standard deviation. D. Portfolio AC is preferred since it provides greater return than Portfolio AB but with more risk, as measured by the standard deviation.
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