Stocks A and B have a correlation coefficient of 0.8. The stocks expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is created.
Stock Expected Return Standard Deviation
A 20% 25%
B 15% 19%
i. What is the expected return of the stock A and B portfolio?
ii. What is the standard deviation of the stock A and B portfolio?
iii. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?