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, $\bar{r}$	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.