Reference no: EM132608729
Assets Expected Rate of Return(%) Risk(%)
1 US Treasury Note 2 0.75
2 Merrill Lynch Bond 5.7 2.5
3 JP Morgan Stock 7 3.5
An investor wants to set up a portfolio of TWO assets, by choosing two assets from the list of THREE assets given in the table above. In the portfolio, the investor wants to hold the two assets in equal proportions.
It has been estimated that the correlation coefficient between the return of the assets are as follows:
Correlation coefficient (return US treasury note, return Merril Lynch Bond)= - 0.5
Correlation coefficient (return US treasury note, return JP Morgan Stock)= - 0.3
Correlation coefficient (return Merril Lynch Bond, return JP Morgan Stock)= 0.6
Assume you are a portfolio manager and you must advise the investor in the investment decision.
Question (a) Detail how you would assess the performance of the portfolio pertaining to the investor and in which portfolio would you advise the investor to invest and why?
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