Homework Answers
Answer (a)
Expected return on current portfolio = 7.72%
Answer (b):
Criteria for fund selection:
1. It should complement the current portfolio.To meet this requirement the fund should have lower correlation.
2. Maintain or increase expected return of the current portfolio. This implies expected return should be equal to or higher than 7.72%
3. Maintain or reduce volatility of current portfolio.
Fund C best meets the above criteria. John should include Fund C in his current portfolio.
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