Portfolio Standard Deviation Suppose the expected returns and standard deviations of Stocks A and B are E( R A ) 5 .09, E( R B ) 5 .15, s A 5 .36, and s B 5 .62.

a. 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 .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 2.5.

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