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linda_us
linda_us, Master's Degree
Category: Multiple Problems
Satisfied Customers: 1402
Experience:  A tutor for Business, Finance, Accounts and other related topics.
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Consider three risky assets A, and C, with expected return

Customer Question

Consider three risky assets A, B and C, with expected return E[RA] = 11%, E[RB] =14% and E[RA] = 15% and standard deviation A = 25%, B = 30% and C = 32%,
respectively. The covariance between asset A and asset B is Cov(RA;RB) = 0:0125, the covariance between asset B and asset C is Cov(RB;RC) = 􀀀0:025 and the covariance between asset A and asset C is Cov(RA;RC) = 0:05.
(A) Calculate the correlation matrix, i.e. the correlation of each pair of assets.
(B) Calculate the expected return and standard deviation of a portfolio with weights wA = 0:4, wB = 0:3 and wC = 0:3 in assets A, B and C respectively.
(C) How would the risk (i.e. the standard deviation of the portfolio) change, if the covariance between asset B and asset C had a positive sign (keeping everything else unchanged)? No need for calculation. Give a verbal answer with reasonable argument.
(D) Can you achieve diversification effect (i.e. reduction of the standard deviation by combining assets in a portfolio) if the assets are perfectly correlated (i.e. the correlation coefficient is 1 for all pairs of assets)?
(E) How will the diversification effect (i.e. the risk reduction achieved by combining the assets in the portfolio) change if the expected return of all three assets increases by 3 percentage points?
Submitted: 12 months ago.
Category: Multiple Problems
Expert:  F. Naz replied 12 months ago.

What is your deadline, thanks.

Customer: replied 12 months ago.
7 hours
Expert:  F. Naz replied 12 months ago.

The time is too short, therefore opting out so other experts may help you, thanks.

Customer: replied 12 months ago.
I need an answer within the the next 10 hours please. I had wanted the answer sooner to review.
Customer: replied 12 months ago.
Should I worry since I haven't had a response that someone will help me? This is not giving me peace of mind.
Customer: replied 12 months ago.
I want to withdraw my question. Good bye.
Customer: replied 12 months ago.
If there is anyone who can help me, I would appreciate it, but if not I need to know.

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