If you include two assets in a portfolio whose returns are, Financial Management

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If you include two assets in a portfolio whose returns are

1. If you include two assets in a portfolio whose returns are perfectly negatively correlated, that portfolio will have an overall risk that

a. increases to a level above that of either asset.

b. decreases to a level below that of either asset.

c. stabilizes to a level between the asset with the higher risk and the asset with the lower risk.

d. remains unchanged.

2. Suppose that the standard deviation of fund A is 5% and the standard deviation of fund B is 7% and the correlation between the two funds is -1.0 . If one were to combine fund A and fund B into a portfolio which has a standard deviation of 2% , answer the following questions:

1) what would the weight for fund A has to be?

2) What would the weight for fund B has to be?

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Financial Management: If you include two assets in a portfolio whose returns are

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Financial Management: If you include two assets in a portfolio whose returns are

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