Assume you wish to evaluate the risk and return behaviors associated with various combinations of assets...

Assume you wish to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfect positive, uncorrelated, and perfect negative. The following average return and risk values were calculated for these assets:
Asset   Average Return, {r}}   Risk (Standard Deviation), s
V   7.6%   4.7%
W   13.2%   9.4%

a. If the returns of assets V and W are perfectly positively correlated (correlation coefficient equals plus 1 ), describe the range of (1) return and (2) risk associated with all possible portfolio combinations.
(1) Range of expected return: between % and % (Round to one decimal place.)

(2) Range of the risk: between % and % (Round to one decimal place.)

b. If the returns of assets V and W are uncorrelated (correlation coefficient equals 0 ), describe the approximate range of (1) return and (2) risk associated with all possible portfolio combinations.

(1) Range of expected return: between % and % (Round to one decimal place.)

(2) Range of the risk: between % and % (Round to one decimal place.)

c. If the returns of assets V and W are perfectly negatively correlated (correlation coefficient equals negative 1 ), describe the range of (1) return and (2) risk associated with all possible portfolio combinations.

(1) Range of expected return: between % and % (Round to one decimal place.)

(2) Range of the risk: between % and % (Round to one decimal place.)

Expert Solution

As per your question you are asked to calculate return and standard deviation of each of the given portfolios separately, which are formed by different combination of Asset V and Asset W.

Return=W₁×R₁+W₂×R₂ .

Standard deviation =

		Return	Standard Deviation
	Asset V	7.60%	4.70%
	Asset V	13.20%	9.40%
			A.perfectly positively correlated (correlation )	1	B.perfectly uncorrelated(correlation ))	0	C.perfectly negatively correlated (correlation )	-1
Situation	% in Asset V	% in Asset W	Return	Standard Deviation	Return	Standard Deviation	Return	Standard Deviation
1	100%	0.00%	7.600%	4.70%	7.600%	4.70%	7.600%	4.70%
2	99%	1.00%	7.656%	4.75%	7.656%	4.65%	7.656%	4.56%
3	98%	2.00%	7.712%	4.79%	7.712%	4.61%	7.712%	4.42%
4	97%	3.00%	7.768%	4.84%	7.768%	4.57%	7.768%	4.28%
5	96%	4.00%	7.824%	4.89%	7.824%	4.53%	7.824%	4.14%
6	95%	5.00%	7.880%	4.94%	7.880%	4.49%	7.880%	4.00%
7	94%	6.00%	7.936%	4.98%	7.936%	4.45%	7.936%	3.85%
8	93%	7.00%	7.992%	5.03%	7.992%	4.42%	7.992%	3.71%
9	92%	8.00%	8.048%	5.08%	8.048%	4.39%	8.048%	3.57%
10	91%	9.00%	8.104%	5.12%	8.104%	4.36%	8.104%	3.43%
11	90%	10.00%	8.160%	5.17%	8.160%	4.33%	8.160%	3.29%
25	76%	24.00%	8.944%	5.83%	8.944%	4.22%	8.944%	1.32%
35	66%	34.00%	9.504%	6.30%	9.504%	4.45%	9.504%	0.09%
36	65%	35.00%	9.560%	6.35%	9.560%	4.49%	9.560%	0.24%
37	64%	36.00%	9.616%	6.39%	9.616%	4.53%	9.616%	0.38%
38	63%	37.00%	9.672%	6.44%	9.672%	4.57%	9.672%	0.52%
39	62%	38.00%	9.728%	6.49%	9.728%	4.61%	9.728%	0.66%
40	61%	39.00%	9.784%	6.53%	9.784%	4.65%	9.784%	0.80%
41	60%	40.00%	9.840%	6.58%	9.840%	4.70%	9.840%	0.94%
42	59%	41.00%	9.896%	6.63%	9.896%	4.75%	9.896%	1.08%
47	54%	46.00%	10.176%	6.86%	10.176%	5.01%	10.176%	1.79%
48	53%	47.00%	10.232%	6.91%	10.232%	5.07%	10.232%	1.93%
49	52%	48.00%	10.288%	6.96%	10.288%	5.13%	10.288%	2.07%
50	51%	49.00%	10.344%	7.00%	10.344%	5.19%	10.344%	2.21%
51	50%	50.00%	10.400%	7.05%	10.400%	5.25%	10.400%	2.35%
52	49%	51.00%	10.456%	7.10%	10.456%	5.32%	10.456%	2.49%
53	48%	52.00%	10.512%	7.14%	10.512%	5.38%	10.512%	2.63%
54	47%	53.00%	10.568%	7.19%	10.568%	5.45%	10.568%	2.77%
55	46%	54.00%	10.624%	7.24%	10.624%	5.52%	10.624%	2.91%
56	45%	55.00%	10.680%	7.29%	10.680%	5.59%	10.680%	3.06%
57	44%	56.00%	10.736%	7.33%	10.736%	5.66%	10.736%	3.20%
58	43%	57.00%	10.792%	7.38%	10.792%	5.73%	10.792%	3.34%
59	42%	58.00%	10.848%	7.43%	10.848%	5.80%	10.848%	3.48%
60	41%	59.00%	10.904%	7.47%	10.904%	5.87%	10.904%	3.62%
68	33%	67.00%	11.352%	7.85%	11.352%	6.49%	11.352%	4.75%
69	32%	68.00%	11.408%	7.90%	11.408%	6.57%	11.408%	4.89%
70	31%	69.00%	11.464%	7.94%	11.464%	6.65%	11.464%	5.03%
71	30%	70.00%	11.520%	7.99%	11.520%	6.73%	11.520%	5.17%
85	16%	84.00%	12.304%	8.65%	12.304%	7.93%	12.304%	7.14%
86	15%	85.00%	12.360%	8.70%	12.360%	8.02%	12.360%	7.29%
87	14%	86.00%	12.416%	8.74%	12.416%	8.11%	12.416%	7.43%
88	13%	87.00%	12.472%	8.79%	12.472%	8.20%	12.472%	7.57%
89	12%	88.00%	12.528%	8.84%	12.528%	8.29%	12.528%	7.71%
90	11%	89.00%	12.584%	8.88%	12.584%	8.38%	12.584%	7.85%
100	1%	99.00%	13.144%	9.35%	13.144%	9.31%	13.144%	9.26%
101	0%	100.00%	13.200%	9.40%	13.200%	9.40%	13.200%	9.40%
			Situation A		Situation B		Situation C
			Range		Range		Range
		Return	7.6% to 13.20%		7.6% to 13.20%		7.6% to 13.20%
		Risk	4.70% to 9.40%		4.2% to 9.40%		0.05% to 9.40%
		Return	Standard Deviation
	Asset V	7.60%	4.70%
	Asset V	13.20%	9.40%

jeff jeffy answered 8 months ago

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