Graded Homework

Total Marks 15

You have been
asked for your advice in selecting the portfolio of asset and have been
supplied with the following data.

Expected Return %

Year Asset
A Asset B Asset C

1998 12 16 12

1999 14 14 14

2000 16 12 16

No
probabilities have been supplied. You have been told that you can create 2
portfolios

One consisting
of Asset A and B and the other consisting of Asset A and C – by investing equal
proportion (i.e. 50%) in each of the two components assets.

1. What is the expected return for
   each asset over the 3 – year period?
2. What is the standard deviation for
   each asset’s return
3. What is the expected return for
   each of the two portfolios?
4. What is the standard deviation for
   each portfolio?
5. Which portfolio do you recommend?
   Why?