Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The projected returns over the next six years, 2018–2023, for each of these assets are summarized in the following table._x000D_
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| Projected Return (%) | ||
| Year | Asset L | Asset M |
| 2018 | 14% | 20% |
| 2019 | 14% | 18% |
| 2020 | 16% | 16% |
| 2021 | 17% | 14% |
| 2022 | 17% | 12% |
| 2023 | 19% | 10% |
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- Use an Excel spreadsheet to calculate the projected portfolio return, rp, for each of the six years.
- Use an Excel spreadsheet to calculate the average portfolio return, rp, over the six-year period.
- Use an Excel spreadsheet to calculate the standard deviation of expected portfolio returns, sp, over the six-year period.
- How would you characterize the correlation of returns of the assets L and M.
- Discuss any benefits of diversification achieved through creation of the portfolio. _x000D_
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