Four assets have the following distribution of returns.a. Compute the expected return and standard deviation of each asset.b. Compute the covariance of asseti. A and...

Four assets have the following distribution of returns.

Required.
a. Compute the expected return and standard deviation of each asset.
b. Compute the covariance of asset
i. A and B
ii. B and C
iii. B and D
c. Compute the correlation coefficient of the combination of assets in b above.

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Solution
a. E(R_A) = 10(0.1) + 10(0.2) + 10(0.4) + 10(0.2) + 10(0.1) = 10%
E(R_B) = 6(0.1) + 8(0.2) + 10(0.4) + 12(0.2) + 14(0.1) = 10%
E(R_CM) = 14(0.1) + 12(0.2) + 10(0.4) + 8(0.2) + 6(0.1) = 10%
E(R_D) = 2(0.1) + 6(0.2) + 9(0.4) + 15(0.2) + 20(0.1) = 10%

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Kavungya answered the question on April 13, 2021 at 13:12

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