The Bank of Tampa has two outstanding loans. Loan A is for $10,000 and Loan B is for $40,000. Loan A has an expected return of 14 percent and a standard deviation of returns of 18 percent. The expected return and standard deviation of returns for loan B are 7 percent and 9 percent, respectively.
a. If the correlation coefficient between loans A and B is 0.15, what are the expected return and standard deviation of this portfolio?
b. What is the standard deviation of the portfolio if the correlation is -0.35?