Example: 2 Risky Assets ■ Suppose we have two assets, US and JP, with: Mean Volatility US E[R₁] = 13.6% 0₁ = 15.4% JP E[R₂] = 15.0% σ₂ = 23.0% 02 and with correlation p = 27%. ■ If an investor holds w₁ = 60% in the US and w₂ = 40% in JP, what is the expected return and the volatility of the portfolio?

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25

Consider a two period economy with a risk free asset yielding a net return r>0 in period 2 and an infinitely large number of risky assets each paying £1 with probability P:[0,1] and £0 with probability 1-p in period 2, Suppose that time realized return of each asset is independent of the return of the other assets, that investors are risk averse, and that the CAPM holds. Then A. All risky assets have the same price equal to p/(1+r) B. Each risky asset is priced as to yield an expected gross return larger than (1+r) C. The price of any risky asset in the first period is larger than p/(1+r) to reflect investors’risk aversion D. The price of any risky asset in the first period is larger than p/(1+r) to reflect systemic risk

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25