$$\begin{array}{l}
\text { Expected Return (\%) }\
\begin{array} { c c c c }
\text { Year } & \text { Asset A } & \text { Asset B } & \text { Asset C } \
\hline 1 & 6 & 8 & 6 \
2 & 7 & 7 & 7 \
3 & 8 & 6 & 8
\end{array}
\end{array}$$
-If you were to create a portfolio designed to reduce risk by investing equal proportions in each of two different assets, which portfolio would you recommend?
A) Assets A and C
B) Assets A and B
C) none of the available combinations
D) cannot be determined

Question

$$\begin{array}{l}
\text { Expected Return (\%) }\
\begin{array} { c c c c } 
\text { Year } & \text { Asset A } & \text { Asset B } & \text { Asset C } \
\hline 1 & 6 & 8 & 6 \
2 & 7 & 7 & 7 \
3 & 8 & 6 & 8
\end{array}
\end{array}$$
-If you were to create a portfolio designed to reduce risk by investing equal proportions in each of two different assets, which portfolio would you recommend?
A) Assets A and C
B) Assets A and B
C) none of the available combinations
D) cannot be determined

Quizplus · Accepted Answer

Assets A and B have the same expected return, but their returns are not perfectly correlated. This means that by investing in both assets, you can reduce the risk of your portfolio without sacrificing too much expected return.

-If You Were to Create a Portfolio Designed to Reduce