1. 1. Suppose Intel has an expected return of 1% and a standard deviation of 40%. Twitter has an expected return of 18% and standard deviation of 60%. The correlation between Intel and Twitter is 0.5. What is the standard deviation of a portfolio invested 40% in Intel and 60% in Twitter?

2. XYZ Corp. plans to issue equity and wants to sell it at the highest price possible. There are only two potential buyers, investors A and B. Investor A is well diversified (she has hundreds of different stocks in her portfolio) while investor B is undiversified (the only stock in her portfolio would be XYZ). Which investor is willing to pay a higher price for XYZ stock? Why?

3. The histogram below depicts the daily returns for Microsoft and American Airlines. Using the histogram, explain which stock is riskier.

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4. Company A has an expected return of 8% and a standard deviation of 40%. Company B has an expected return of 23% and standard deviation of 80%. The correlation between A and B is 0.3. What is the expected return and standard deviation of a portfolio invested 75% in Company A and 25% in Company B?