Assume you are considering a portfolio containing two, assets L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The expected returns over the next 6 years, 2012-2017, for each of these assets are summarized in the following table:
Expected Return (%)
Year Asset L Asset M
2012 14 20
2013 14 18
2014 16 16
2015 17 14
2016 17 12
2017 19 10
a) find out the expected portfolio return, for each of the six years.
b) find out the average expected portfolio return, ovet the six year period
c) find out the standard deviation of expected portfolio returns, over the six-year period
d) How would you characterize the correlation of returns of the two assets L and M?
e) Discuss any benefits of diversification achieved through creation of the portfolio