Use the 3-asset portfolio return/risk formula to calculate the following portfolio’s expected return and risk.
Asset Class Portfolio weight Expected return Expected risk
Stocks (S) 60% 12% 20%
Bonds (B) 30% 8% 10%
Cash equivalent (C) 10% 4% 3%
Correlation table:
Asset Class Stocks (S) Bonds (B) Cash equivalent (C)
Stocks (S) 1
Bonds (B) 0.25 1
Cash equivalent (C) -0.08 0.15 1