You have been asked for your advice in selecting a portfolio of assets and have been given the following data:

Expected Return

Year

Asset A

Asset B

Asset C

2002

12%

16%

12%

2003

14%

14%

14%

2004

16%

12%

16%

No probilities have been supplied. You have been told taht you can create two potfolios - one consisting of assets A and B and the other consisting of assets A and C - by investing equal proportionss (50%) in each of the two component assets.

1.What is the expected return for each asset over the 3-year period?

2.What is the standard deviation for each asset's return?

3.What is the expected return for each of the two portfolios?

4.How would you characterize the correlations of returns of the two assets making up each of the two portfolios, identified in Question 3?

5.What is the standard deviation for each portfolio?

6. Which portfolio do you recommend? Why?