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Denzel plc. is an asset management company. It manages a two-asset portfolio which consists of two risky assets, A and B. The proportions of A and B held in the portfolio are 40% and 60%, respectively

Denzel plc. is an asset management company. It manages a two-asset portfolio which consists of two risky assets, A and B. The proportions of A and B held in the portfolio are 40% and 60%, respectively. The expected return of A and Bare 12% and 8%, respectively. Standard deviations of A and Bare 70% and 40%,respectively. The correlation coefficient between A and B is -0.6.

i)Calculate the expected return and standard deviation of the two-asset portfolio.

ii) In light of the concept of portfolio diversification, make comments on the results from i).

Apr 14 2021 View more View Less

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