John’s portfolio consists of $1000 in XYZ stock and $4000 in ABC. Historically XYZ has had an average return of 16% annually with a standard deviation of 30%. Historically ABC has an average return of 24% annually with a standard deviation of 40%. The correlation between the 2 stocks has been 0.4.
a) What is the expected return (based on historical averages) of John’s portfolio
b) What is the standard deviation of John’s portfolio?