2) An investor is provided with the following information: Expected return on stock A (%) 12 Expected return on stock B (%) 20 Standard deviation of returns: Stock A 1.0 Stock B 6.0 Correlation coefficient of the returns of stocks A and B + 0.3 a) What are the expected returns and standard deviations of a portfolio consisting of : (i) 100% in stock A (ii) 100% in stock B (iii) 50% in each stock (iv) 25 % in stock A and 75% in stock B ) 75% in stock A and 25% in stock B b) What is your conclusion when you compare all these portfolios? (2 marks) c) Redo the calculations assuming that the correlation coefficient of the returns between the twostocks is now -0.5 d) What difference did the change in the correlation coefficient make?

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