You have been provided the following returns data of three assets for your advice in selecting a portfolio of assets: Year Rate of return: Asset A…
BBS Fundamentals of Investment · 2080 · Solved Question with Answer
You have been provided the following returns data of three assets for your advice in selecting a portfolio of assets:
| Year |
Rate of return: Asset A |
Asset B | Asset C |
| 2019 | 10% | 18% | 10% |
| 2020 | 12% | 16% | 12% |
| 2021 | 14% | 14% | 14% |
| 2022 | 16% | 12% | 16% |
| 2023 | 18% | 10% | 16% |
You have been told that you can create two portfolios - one consisting of assets A and B, and other consisting of assets A and C - by investing equal proportions in each of the two component assets.
a. Calculate average return and standard deviation for each of the three assets.
b. Calculate the covariance between the returns of assets A and B, and assets A and C.
c. Calculate the return and standard deviation of the portfolios consisting of assets A and B, and assets A and C.
d. Which portfolio do you recommend? Why?