You think that you can increase return and reduce risk by adding other asset classes to the portfolio. You are aware that depressed conditions in the U.S. real estate markets (since the last crash) are providing opportunities for property acquisitions at levels of expected returns are unusually high by historical standards. You believe that an investment in U.S. real estate would be both appropriate and timely. You have recommended a 20% position be established with funds taken equally from stocks and bonds. Preliminary discussions revealed that several trustees believe real estate is too risky to include in portfolio. The board chairman, however, has scheduled a special meeting for further discussion of the matter and asked you to provide background information that will clarify the risk issue. To assist you, the following expectational data has been developed: 2. Explain the effect of both portfolio risk and return that would result from the addition of US real estate. Include in your answer two reasons for any changes you expected in portfolio risk. (note it is not necessary to compute expected return and risk). (20 points) 3.Your understanding of finance theory causes you to doubt the validity of the expected returns and risk for US real estate. Justify your skepticism (discuss return, standard deviation and You think that you can increase return and reduce risk by adding other asset classes to the portfolio. You are aware that depressed conditions in the U.S. real estate markets (since the last crash) are providing opportunities for property acquisitions at levels of expected returns are unusually high by historical standards. You believe that an investment in U.S. real estate would be both appropriate and timely. You have recommended a 20% position be established with funds taken equally from stocks and bonds. Preliminary discussions revealed that several trustees believe real estate is too risky to include in portfolio. The board chairman, however, has scheduled a special meeting for further discussion of the matter and asked you to provide background information that will clarify the risk issue. To assist you, the following expectational data has been developed: 2. Explain the effect of both portfolio risk and return that would result from the addition of US real estate. Include in your answer two reasons for any changes you expected in portfolio risk. (note it is not necessary to compute expected return and risk). (20 points) 3.Your understanding of finance theory causes you to doubt the validity of the expected returns and risk for US real estate. Justify your skepticism (discuss return, standard deviation and
