Increasing the Amount of Wealth in Asset a Whilst Maintaining

question 53

Multiple Choice

Increasing the amount of wealth in Asset A whilst maintaining the entire wealth invested in a portfolio consisting of two assets only,A and B (assume that the expected return and standard deviation of both assets are A: 0.10 and 0.03,and B: 0.15 and 0.05,respectively) :

• A)will increase the expected return of the portfolio.
• B)may reduce the variance of the portfolio regardless of the correlation coefficient between Assets A and B
• C)will decrease the expected return of the portfolio,but the expected return will be closer to 15% than before.
• D)will decrease the expected return of the portfolio,but the expected return will still be greater than if the portfolio consisted of Asset A only.

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