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Diversification and risk reduction




Risk and Return.docx Download Attachment;Risk & Return;[A] Explain how diversification can reduce the risk of a portfolio of;assets to below the weighted average of the risk of the individual;assets?;[B] You have been given the following information by the analysts of;your firm and wish to invest all your funds;Scenario;Optimist;ic;Most;likely;Pessimis;tic;Returnon;SecurityA;6.0%;Probabil;ity;30.0%;Returnon;SecurityB;9.0%;Probabil;ity;30.0%;5.0%;60.0%;3.0%;60.0%;9.0%;10.0%;5.0%;10.0%;Assume a coefficient of correlation of -0.05 and a target weight for;Security A of 70%.;1. Calculate the expected return of the portfolio?;2. Calculate the standard deviation of portfolio returns?;View Full Attachment


Paper#18298 | Written in 18-Jul-2015

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