Comelation, risk, and reourn Matt Peners wishes to evaluate the risk and naturn
ID: 2618211 • Letter: C
Question
Comelation, risk, and reourn Matt Peners wishes to evaluate the risk and naturn behaviors associaned with vanous combinaons of assets V and W undar thee assumed degnees of comalation pertecty postoive uncomelaned and perfectly negaiveThe expected neturn and risk vlues calculated for each of the asets ae shown in the following table, ?. the rehms of assets v and w are peecty post ey co eated (correlation coencert -ti desobe te range of (1) expected eturn and (2) risk associated with all posstie port lo contra ons b. If the retuns off assets V and W ane uncomeated (comelation coaficientO, describe the approximate range of (1) expected neturn and (2) risk associated with all possible portfolio combinatons a. nemrns ef assets v and w are Detecty posever correlated ccorrelation coencw" «n.? posses* potolo conenations we' have Data Table arange of expected renum between 5% and 11%and nak bebeen 8% and 12% arange of expected rnum between 0% and 12% and nsk beteen 11% andonk OA, cia on ??? icon ocated on he toongre corner ofthe data tatie beowinorder to ??, arange of expected rearn betwe" 8% and 12% and nsk beheen11% and ies. ran 5% but geater then 0% OD. arange er expected resun between 8% and 12% and nak between 5% and "% b. " trhe rwarns of assets v and w uncomeiated 'corneuton coenent 01 am posstie po foto contrat ons wm have Risk (standard select th* best OA. OB. OC. OD. arange of expected resum between 8% and 12% and nsk beheen 11%and 0% arange of expected reun between 8% and 12% and nsk between 5% and 11% arange of expected roun between 8% and 12% and nsk between 11% and less than 5% but geater than 0% arange of expected reun between 5% and 11%and nsk between 8% and 12% Print DoneExplanation / Answer
a. A range of expected return between 8% and 12% and risk between 5% and 11%
When the correlation between two assets is perfectly positively the range of returns and risk will lie between the return and risk values of the assets.
b. A range of expected return between 8% and 12% and risk between 11% and less than 5% but greater than zero
If the assets are uncorrelated the range of return will same as the range of the two assets. The risk range will be between the risk of the assets with higher risk and less than the risk of asset with lower risk but greater than zero.
(c) A range of expected return between 8% and 12% and risk between 11% and 0
If the assets are negatively correlated, the return will lie in the range of the returns of the two assets. The risk will lie in the range of the risk of the most risky and zero.