1. An investment costs $465 and is expected to produce cash flows of $100 at the end of each of the next 4 years, then an extra lump sum payment of $200 at the end of the fourth year. What is the expected rate of return on this investment?
2. Stocks A and B have expected returns of 8% and 10%, and standard deviations of 12% and 18%, respectively. Calculate the expected return and standard deviation of equally weighted portfolios of the two stocks if the correlation between the two stocks is 0.5? Repeat the calculation for correlation of 0 and -0:5. If you could set the correlation between the two stocks, which of the three values would you choose? Explain.