Assume you are considering a portfolio containing two assets, L and M. Asset L will represent...
Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 44% of the dollar value of the portfolio, and asset M will account for the other 56%. The projected returns over the next 6 years, 2018 - 2023, for each of these assets are summarized in the following table:
|
Projected Return |
||||
|
Year |
Asset L |
Asset M |
||
|
2018 |
13% |
19% |
||
|
2019 |
14% |
19% |
||
|
2020 |
17% |
15% |
||
|
2021 |
16% |
15% |
||
|
2022 |
16% |
11% |
||
|
2023 |
18% |
11% |
||
.
a. Calculate the projected portfolio return, rp, for each of the 6 years.
b. Calculate the average expected portfolio return, rp, over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period.
d. How would you characterize the correlation of returns of the two assets L and M?
e. Discuss any benefits of diversification achieved through creation of the portfolio.
Homework Answers
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![Home nert Page Layout Formulas Data Review View dd-Ins as Cut Σ AutoSum ー E ゴWrap Text copy ▼ B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting G794 formula rp WL*RL +WM RM WL-0.44, WM-0.56 Portfolio return (rp) 787 788 789 a 790 791 792 793 794 795 796 797 b 798 c 799 d 800 801 802 e 803 804 805 4 capm-portfolio retirement futures margin PV, FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELDNPV ROE std costi year asset L (RL) asset M (RM) 2018 2019 2020 2021 2022 2023 13% 14% 17% 16% 16% 16% 19% 19% 15% 15% 11% 1196 16.36%-0.44°C790+0.56*0790] 16.80% SAME WAY FOR OTHER YEARS 15.88% 15.44% 13.20% 13.20% 15.15% SUM(E790:E795)/6 AVERAGE EXPECTED PORTFOLIO RETURN STANDARD DEVIATION OF PORTFOLIO RETURN = CORRELATION BETWEEN ASSET L & M = 1.58% STDEV,S(E790:E795) 0.743 CORREL(C790:C795,D790:D795) AS CORRELATION IS NEGATIVE, WE CAN REAP BENEFIT BY CREATION OF PORTFOLIO AS CORRELATION IS NEGATIVE, THE PORTFOLIO STANDARD DEVIATION WILL DECREASE WHICH WILL REDUCE RISK FOR INVESTOR ECONOMY, BEFORE AFTERBUYBACK Shell 03:09 12-01-2019](http://img.homeworklib.com/questions/6f777cb0-6f1a-11ea-97aa-b13376802a35.png?x-oss-process=image/resize,w_560)
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