Problem set 6 Use the information from Scenario 1 to answer questions 1 and 2; Scenario1: Consider the following five assets, which have rates of return in six equally likely scenarios: Awful Poor...

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Problem set 6 Use the information from Scenario 1 to answer questions 1 and 2; Scenario1: Consider the following five assets, which have rates of return in six equally likely scenarios: Awful Poor Medium OK Good Great Asset P1 -2% 0% 2% 4% 6% 10% Asset P2 -1% 2% 2% 2% 3% 3% Asset P3 -6% 2% 2% 3% 3% 1% Asset P4 -4% 2% 2% 2% 2% 20% Asset P5 10% 6% 4% 2% 0% -2% Question 1 ) Calculate the expected return and risk (standard deviation, use excel for this calcuation) of all Assets .  Based on your calculations, which Asset has the highest expected return and the greatest amount of risk?  Question 2 ) Assume that you own Asset P1 and want to buy another asset.  When bundling another Asset with P1, which of the following asset combinations when bundled together, creates a relatively high expected return with the lowest amount of risk.    Use the following information from Scenario 2 to answer questions 3 through 5. Scenario 2: The following table shows the returns for the market index (Market - M) and the returns for two stocks (Asset X & Y) under three scenarios.  Assume each scenario has an equal chance of occurring (33%). Bad Okay Good Market - M -5% 5% 15% Asset - X -2% -3% 25% Asset - Y -4% -6% 30% Question 3 ) What is the market Beta (b) for asset X? Question 4 ) What is the correlation of "Asset - Y" to "Market - M"? Question 5 ) Assume that you own the shares of stock in the market index "Market - M".  You sell off 10% of your shares in "Market - M" and replace it with 10% of either stock "Asset - X" or stock "Asset - Y". Would a portfolio made up of 90% "Market - M" and 10% "Asset - X" be more riskier than a portfolio made up of 90% "Market - M" and 10% "Asset - Y"?  Explain your answer in a couple of sentences.