Refer to exhibit 10.2.

a. Construct an equal-weighted (50/50) portfolio of investments B and C. What are the expected rate of return and standard deviation of the portfolio? Explain your results.

b. Construct an equal-weighted (50/50) portfolio of investments B and D. What are the expected rate of return and standard deviation of the portfolio? Explain your results.

Exhibit 10.2

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Rate of Return if State Occurs Year A B C D AB AC AD 1 -10% 30% -25% 15% 10% -17.5% 2.5% 2 20 -5 10 10 -2.5 5.0 3 10 10 15 10 12.5 5.0 4 20 0 35 25 10 27.5 22.5 5 30 -10 55 35 10 42.5 32.5 Rate of return 10.0% 10.0% 15.0% 17.0% 10.0% 12.5% 13.5% Standard deviation 15.8% 15.8% 31.6% 13.5% 0.0% 23.7% 13.3%