Exhibit 6-10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}\begin{array}{cc}\text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \\\hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right) =16 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right) =14 \% \\\left(\sigma_{\mathrm{A}}\right) =3 \% & \left(\sigma_{\mathrm{B}}\right) =8 \% \\\mathrm{~W}_{\mathrm{A}}=0.5 & \mathrm{~W}_{\mathrm{B}}=0.5\end{array}\\\mathrm{COV}_{\mathrm{A,B}}=0.0014\end{array}$
-Refer to Exhibit 6-10. What is the expected return of a portfolio of two risky assets if the expected return E(R_i) , standard deviation (?_i) , covariance (COV_i,j) , and asset weight (W_i) are as shown above?

Question

Exhibit 6-10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

\begin{array}{c}\begin{array}{cc}\text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \\\hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right) =16 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right) =14 \% \\\left(\sigma_{\mathrm{A}}\right) =3 \% & \left(\sigma_{\mathrm{B}}\right) =8 \% \\\mathrm{~W}_{\mathrm{A}}=0.5 & \mathrm{~W}_{\mathrm{B}}=0.5\end{array}\\\mathrm{COV}_{\mathrm{A,B}}=0.0014\end{array}

-Refer to Exhibit 6-10. What is the expected return of a portfolio of two risky assets if the expected return E(R_i) , standard deviation (?_i) , covariance (COV_i,j) , and asset weight (W_i) are as shown above?

Quizplus · Accepted Answer

The expected return of a portfolio is calculated using the formula: $$E(R_p) = w_A \cdot E(R_A) + w_B \cdot E(R_B)$$ Given that $w_A = 0.5$, $E(R_A) = 16\%$, $w_B = 0.5$, and $E(R_B) = 14\%$, the expected return of the portfolio is: $$E(R_p) = 0.5 \cdot 16\% + 0.5 \cdot 14\% = 8\% + 7\% = 15\%$$

Exhibit 6-10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 6-10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)