1. (a) Using the following information calculate the portfolio (p/f) return and risk of a portfolio consisting of two assets:

Stock	Expected return	Standard deviation (std)	P/f weight
Toronto stock index (STX)	4%	3.5%	0.60
U.S. stock index (S&P 500)	5%	2%	0.40
Correlation (STX, S&P500)	0.25

(b) Recalculate the portfolio expected return and risk by (i) changing the correlation to -0.25 and (ii) changing the weight to 0.40 for STX and 0.60 for S&P500 and comment on the differences in the results of (a) and (b). (20 points)

Note: The covariance of two stocks A and B (cov (A, B) is equal to correlation coefficient (A, B)*std of A*std of B.