1.

Suppose there are two assets, Asset 1 and Asset 2. You are given the following information about the two assets.

E(R₁) = 0.12 E(s₁) = 0.05

E(R₂) = 0.20 E(s₂) = 0.08

1. Calculate the expected returns and expected standard deviations of a two-stock portfolio in which Stock 1 has a weight of 70 percent under the following conditions.

1. r_1,2 = 1.00
2. r_1,2 = 0.50
3. r_1,2 = 0.00
4. r_1,2 = 0.50
5. r_1,2 = 1.00

Show your calculations.

2. Which of these portfolios has the most risk? Why?