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You have been asked for your advice in selecting a portfolio of assets and have been given the following date: EXPECTED RETURN (%) Year Asset

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

EXPECTED RETURN (%)

Year Asset A Asset B Asset C
2022 12 16 12
2023 14 14 14
2024 16 12 16

You have been told that you can create two portfolios: one consisting of Asset A and Asset B, and the other consisting of Asset A and Asset C by investing equal proportions (50%) in each of the two component assets.

  1. What is the expected (average) return for each asset over the three-year period?
  2. What is the standard deviation for each assets return?
  3. What is the expected (average) 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 part (c)?
  5. What is the standard deviation for each portfolio?
  6. Which portfolio do you recommend? Why?

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