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Compute the total risk of the portfolio a and b

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Reference no: EM132799656

Owen is considering two investments A and B. The risk and return characteristics of the two projects are as shown below:

Project A (%) Project B (%)

Expected return 16 20

Risk (standard deviation) 8 10

Owen plans to convert 80% and 20% of his funds in A and B, respectively. The correlation coefficient of returns A and B = 0.5.

Required:

a. Determine the expected return from the proposed portfolio comprised of A and B

b. Compute the total risk of the portfolio A and B

c. Suppose the correlation coefficient between project A and B was -1.0, establish the risk of the portfolio

d. Discuss your observations

Reference no: EM132799656

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