NISM Series XXI-B case set 2

A manager builds a portfolio from Asset E and Asset D. E has an expected annual return of 16% and annual standard deviation of 20%. D has expected return 8% and standard deviation 10%. The proposed weights are 60% in E and 40% in D, with no leverage or cash position. The estimated correlation is 0.25. Use portfolio variance = wE²σE² + wD²σD² + 2wEwDσEσDρ, with all rates in decimal form. For one sensitivity question, change only correlation to zero. These are forward-looking estimates, not guarantees, and the manager has not assumed that either asset’s credit, liquidity or other risks disappear when the two are combined.

All amounts and contract terms in this case are hypothetical.