Solution-Variance of the return to the whole portfolio

Variance of the return to the whole portfolio

Reference no: EM131071791

A portfolio consists of two assets A and B. Their respective mean returns are E(RA) = 15% and E(RB) = 10%. Their variances are σ 2 A = 81 and σ 2 B = 49. Sixty per cent of the portfolio consist of asset A.

(a) Assuming Cov(RA, RB) = -50, calculate the mean and the variance of the return to the whole portfolio.

(b) Assuming that the covariance between the two assets is at its maximum possible value, calculate the return to the whole portfolio.

(d) Show that the variance of the portfolio (its risk) can be driven to 0 if the two assets are perfectly negatively correlated.

Reference no: EM131071791

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Variance of the return to the whole portfolio

Reference no: EM131071791

Reference no: EM131071791

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