Refer to Exhibit 7.1. What is the expected return of a portfolio of two risky as
ID: 2715080 • Letter: R
Question
Refer to Exhibit 7.1. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
Exhibit 7.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 10%
E(RB) = 15%
(sA) = 8%
(sB) = 9.5%
WA = 0.25
WB = 0.75
CovA,B = 0.006
Select one:
a. 8.79%
b. 12.5%
c. 13.75%
d. 7.72%
e. 12%
Asset (A)
Asset (B)
E(RA) = 10%
E(RB) = 15%
(sA) = 8%
(sB) = 9.5%
WA = 0.25
WB = 0.75
CovA,B = 0.006
Explanation / Answer
Expected return = (E(RA)* WA)+(E(RB) *WB)
= [10*.25 ] + [15 * .75]
= 2.5 + 11.25
= 13.75%
correct option is "C"