Question: You are considering whether to invest in two stocks, Stock A and Stock B. Stock A has a beta of 1.15 and the standard deviation of its returns has been estimated to be 0.28. For Stock B, the beta is 0.84 and standard deviation is 0.48.
a. Which stock is riskier?
b. If the risk-free rate is 4% and the market risk premium is 8%, what is the expected return for a portfolio that is composed of 60% A and 40% B?
c. If the correlation between the returns of A and B is 0.50, what is the standard deviation for the portfolio that includes 60% A and 40% B?