Portfolio Risk and Return - it-educ.jmu.edu
Portfolio Risk and Return - it-educ.jmu.edu
Portfolio Risk and Return - it-educ.jmu.edu
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<strong>Portfolio</strong> risk <strong>and</strong> return practice problems<br />
Problem 1 What is the portfolio return <strong>and</strong> st<strong>and</strong>ard deviation for a two-asset<br />
portfolio comprised of the following two assets if the correlation of their<br />
returns is 0.5?<br />
Asset C Asset D<br />
Expected return 7% 25%<br />
St<strong>and</strong>ard deviation of expected returns 5% 30%<br />
Amount invested $50,000 $50,000<br />
Correlation 0.40<br />
Problem 2 What is the portfolio return <strong>and</strong> st<strong>and</strong>ard deviation for a two-asset<br />
portfolio comprised of the following two assets if the correlation of their<br />
returns is 0.5?<br />
Asset E Asset F<br />
Expected return 5% 50%<br />
St<strong>and</strong>ard deviation of expected returns 5% 40%<br />
Amount invested $60,000 $40,000<br />
Correlation 0.20<br />
Problem 3 What is the portfolio return <strong>and</strong> st<strong>and</strong>ard deviation for a two-asset<br />
portfolio comprised of the following two assets if the correlation of their<br />
returns is 0.5?<br />
Asset G Asset H<br />
Expected return 10% 25%<br />
St<strong>and</strong>ard deviation of expected returns 8% 40%<br />
Amount invested $40,000 $60,000<br />
Correlation -0.30<br />
Solutions to portfolio risk <strong>and</strong> return practice problems<br />
Problem Expected portfolio return <strong>Portfolio</strong> risk<br />
1 16% 16.1632%<br />
2 23% 16.8582%<br />
3 19% 23.2413%<br />
<strong>Portfolio</strong> risk <strong>and</strong> return 2 of 2
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