You have been asked for your advice in selecting the portfolio of asset and have been supplied with the following data.
Expected Return %
Year Asset A Asset B Asset C
1998 12 16 12
1999 14 14 14
2000 16 12 16
No probabilities have been supplied. You have been told that you can create 2 portfolios
One consisting of Asset A and B and the other consisting of Asset A and C – by investing equal proportion (i.e. 50%) in each of the two components assets.
- What is the expected return for each asset over the 3 – year period?
- What is the standard deviation for each asset’s return
- What is the expected return for each of the two portfolios?
- What is the standard deviation for each portfolio?
- Which portfolio do you recommend? Why?