Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 8, Problem 8.15P

Learning Goal 4

P8- 15 Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected returns and standard deviations calculated for each of the assets are shown in the following table.

Asset  Expected return, r ¯ Standard deviation, σ
V 8% 5%
W 13 10
  1. a. If the returns of assets V and Ware perfectly pos1t1vely correlated (correlation coefficient = + 1), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations.
  2. b. If the returns of assets V and W are uncorrelated (correlation coefficient = 0), describe the approximate range of (1) expected return and (2) risk associated with all possible portfolio combinations.
  3. c. If the returns of assets V and W are perfectly negatively correlated (correlation coefficient = –1 ), describe the range of (1) expected return and (2) risk associated with all possible portfolio combinations.
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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

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