Suppose the expected returns and standard deviations of Stocks A and B are E (R_A) = .10, E(R_B) = .12, σ_A = .39, and σ_B = .72.

a. Calculate the expected return and standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation between the returns on A and B is .5.

b. Calculate the standard deviation of a portfolio with the same portfolio weights as in part (a) when the correlation coefficient between the returns on A and B is −.5.

c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?