Problem: Suppose the expected returns and standard deviations of stocks A and B are
E(RA) = 0.17
E(RB) = 0.27
StdDevA = 0.12, and
StdDevB = 0.21, respectively
Q1. Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation between the returns on A and B is 0.6.
Q2. Calculate the standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation coefficient between the returns on A and B is -0.6.
Q3. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?