I've been avoiding revising these type of questions as i just don't know where to start so any hints or tips would be appreciated if not necessarily the full blown answer, thank you!!
Here's the question :
A portfolio has two assets, Asset 1 and Asset 2. The returns on these assets are given by R1 and R2 respectively where:
R1 ~ N(1.5,1)
R2 ~ N(1.5,2)
The returns on the assets are independent of one another.
a) Which asset is riskier? Explain your reasoning.
b) What is the probability that the first asset yields a negative return?
c) What is the probability that the second asset yields a negative return?
d) An investor is choosing between Portfolio A (all Asset 1), Portfolio B (invest half your funds in Asset 1 and half of Asset 2) and Portfolio C (all Asset 2). The investor has 100 units to invest. Calculate the expected return and variance for each portfolio.
e) Discuss your recommendations to the investor based on your results from d).