Reference no: EM133073136
You are managing a stock portfolio for a client that contains three assets, A, B, C. You currently hold each in equal proportion and the portfolio has the following characteristics:
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Covariance Matrix
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E(r)
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SD
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A
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B
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C
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A
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0.19
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0.21
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A
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0.0441
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0.0095
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0.0076
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B
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0.15
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0.15
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B
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0.0095
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0.0225
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0.0054
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C
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0.06
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0.12
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C
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0.0076
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0.0054
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0.0144
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Your client asks you to add a 4th asset to the portfolio. The new portfolio will hold all assets in equal proportion. You have identified a potential asset, X. Asset X has an expected return of 12%, a Std. deviation of 36% and a correlation with all other assets in the portfolio of 0.
Choose 1 for a, b, c
a.) The expected return of the new portfolio is: Higher than old portfolio, lower than original, same as original, cannot determine
b.) The variance of the new portfolio is: Higher than old portfolio, lower than original, same as original, cannot determine
c.) The standard deviation of the new portfolio is : less than 15%, equal to 15%, greater than 15% but less than 25%, equal to 25%, greater than 25%, cannot determine