Question

Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected return and risk values calculated for each of the assets are shown in the following table, B a. If the returns of assets V and W are perfectly positively correlated correlation coefficient = +1), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations. b. If the returns of assets V and W are uncorrelated (correlation coefficient = 0), describe the approximate range of (1) expected return and (2) risk associated with all possible portfolio combinations. c. If the returns of assets V and W are perfectly negatively correlated (correlation coefficient = -1), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations, a. If the returns of assets V and W are perfectly positively correlated (correlation coefficient = +1), all possible portfolio combinations will have: (Select the best answer below.) O A. a range of expected return between 8% and 12% and risk between 4% and 10% OB. a range of expected return between 4% and 10% and risk between 8% and 12%. O c. a range of expected return between 8% and 12% and risk between 10% and 0%. OD. a range of expected return between 8% and 12% and risk between 10% and less than 4% but greater than 0%. b. If the returns of assets V and W are uncorrelated (correlation coefficient = 0), all possible portfolio combinations will have: (Select the best answer below.) O A. a range of expected return between 8% and 12% and risk between 10% and less than 4% but greater than 0% O B. a range of expected return between 8% and 12% and risk between 4% and 10%. O c. a range of expected return between 4% and 10% and risk between 8% and 12%. OD. a range of expected return between 8% and 12% and risk between 10% and 0% c. If the returns of assets V and W are perfectly negatively correlated (correlation coef Question Viewer Yossible portfolio combinations will have: (Select the best answer below.) O A. a range of expected return between 8% and 12% and risk between 4% and 10%. O B. a range of expected return between 8% and 12% and risk between 10% and less than 4% but greater than 0%. OC. a range of expected return between 4% and 10% and risk between 8% and 12%. Click to select your answer

Answer 1

a.

The most risky one

C.stock B.

The one with high beta is the most risky one.

Least risky one.

A. stock C.

The one with low beta is the least risky one.

b.

A.Stock C.

If market is going to decline the one with negative beta can be added to portfolio.

c.

A.stock B.

If a rally is anticipated, the one with high beta can be added.