Question: You are given the following information concerning two stocks:
You are given the following information concerning two stocks:
A B
Expected Return 10% 14%
Standard deviation of the expected return 3.0% 5.0%
Correlation coefficient of the returns -.1%
a) What is the expected return on a portfolio consisting of 40 percent in stock A and 60 percent in stock B?
b) What is the standard deviation of this portfolio?
c) Discuss the risk and return associated with investing (a) all your funds in stock A, (b) all your funds in stock B, and (c) 40 percent in A and 60 percent in B. (This answer must use the numerical information in your answers derived above.)