Asset A has an expected return of 10% and standard deviation of 20%. Asset B has an expected return of 16% and a standard deviation of 40%. The correlation between A and B is 0.35. Portfolio C is composed of 30% asset A and 70% asset B.
Portfolio C: Expected return= 14.2% Standard deviation= 30.62%
Question:
A) Plot the attainable portfolios for a correlation of 0.35. Now plot the attainable portfolios for correlatio of +1.0 and -1.0.
B) Suppose a risk-free rate has an expected return of 5%. By definition, its standard deviation is zero, and its correlation with another asset is also zero. Using only asset A and the risk-free asset, plot the attainable portfolios.