The two assets, X and Y, whose returns are shown in the

multivariate distribution to the right, have the following

expected returns, variances, covariance, and
correlation: mX = 12.00%; mY = 12.50%; sX = 3.317%; sY =
2.500%; Cov(X,Y) = -.0004; rXY = -.45

a.

What is the expected return and standard deviation

of a portfolio that is 50% Asset X and 50% Asset Y?
b.
What is the expected return and standard deviation
of a portfolio that is 75% Asset X and 25% Asset Y?
c.
Which of the preceding portfolios ((a) or (b)) is
better? Why?
 E[R] S COV(X,Y) Correl_X,Y
X 12% 3.317% -0.0004 -0.45
Y 12.50% 2.500%
a.
What is the expected return of a portfolio that is
50% Asset X and 50% Asset Y? 12.2500%
What is the standard deviation of a portfolio that is
50% Asset X and 50% Asset Y? 1.5209%
b.
What is the expected return of a portfolio that is
75% Asset X and 25% Asset Y? 12.12500%
What is the standard deviation of a portfolio that is
75% Asset X and 25% Asset Y? 2.2538%
c.
Portfolio (a.) is better than Portfolio (b.) due to the marginally higher expected return, but more so the lower
Which of the preceding portfolios ((a) or (b)) is variability. With portfolio (b.) investors can expect to achieve a lower estimated return, with a higher
better? Why? likelihood that the return will deviate from that expected value (i.e. higher SD)

E[R] S Var
X 12% 3.317% 0.001100
Y 12.50% 2.500% 0.000625

a.) E[R_.5X+.5Y] 12.2500%

SD_Port: First Compute Sample Var for X, Y

Var_Port: 0.00023131
SD_Port: 1.5209%

E[R] S Var
X 12% 3.317% 0.001100
Y 12.50% 2.500% 0.000625

b.) E[R_.75X+.25Y] 12.12500%

SD_Port: First Compute Sample Var for X, Y

Var_Port: 0.00050795
SD_Port: 2.2538%
 ed return, but more so the lower
ated return, with a higher
SD)

COV(X,Y) Correl_X,Y Weight

-0.0004 -0.45 50%
50%

COV(X,Y) Correl_X,Y Weight

-0.0004 -0.45 75%
25%