Risk-Return in a Portfolio Question

question 20

Essay

Risk-Return in a Portfolio Question:
The following table presents some statistics about the returns of three assets, Assets A, B, and C, respectively, under three possible scenarios (Boom, Normal, and Recession).The expected probabilities of each state are also specified in the table.
a)Complete the blanks in the above table.Show your calculations.
b)Suppose you wish to combine Assets A and B in order to create a portfolio that has the same total risk as Asset C.What weight should you invest in Asset A? In Asset B?

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Definitions:

Decompression Melting

Melting of a rock or other material due to a decrease in pressure.

Decompression Melting

The process where rock melts due to a decrease in pressure, often occurring in the mantle.

Convection Cell

The movement of material in an elliptical to roughly circular loop by the process of convection; movement is driven by differences in density, especially those caused by temperature variations.

Ethanol

A volatile, flammable, colorless liquid alcohol, used as a biofuel and in the manufacture of various chemicals and pharmaceuticals.