Increasing the amount of wealth in Asset A whilst maintaining the entire wealth invested in a portfolio consisting of two assets only,A and B (assume that the expected return and standard deviation of both assets are A: 0.10 and 0.03,and B: 0.15 and 0.05,respectively):
A)will increase the expected return of the portfolio.
B)may reduce the variance of the portfolio regardless of the correlation coefficient between Assets A and B
C)will decrease the expected return of the portfolio,but the expected return will be closer to 15% than before.
D)will decrease the expected return of the portfolio,but the expected return will still be greater than if the portfolio consisted of Asset A only.

Question

Quizplus · Accepted Answer

Increasing the amount of wealth in Asset A will decrease the expected return of the portfolio because Asset A has a lower expected return (0.10) compared to Asset B (0.15). However, since the portfolio still includes some of Asset B, the expected return will be greater than if the portfolio consisted of Asset A only.

Increasing the Amount of Wealth in Asset a Whilst Maintaining