Suppose expected dollar returns to U.S. investors in the United States and Germany are 11.8% and 12.5%, respectively. The U.S. standard deviation is 17.8% and the German standard deviation is 30.0%.
a. Calculate the expected return of an equally weighted portfolio of these two indices.
b. Calculate the standard deviations of equally weighted portfolios of the two indices under : i) perfect positive correlation, ii) perfect negative correlation, iii) the observed correlation of 0.443.