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2. (a) A portfolio is constituted with three securities having the following characteristics: Stock A B C Return% 17.5 24.8 15.7 Standard deviation 32 26

2. (a) A portfolio is constituted with three securities having the following characteristics: Stock A B C Return% 17.5 24.8 15.7 Standard deviation 32 26 18 Correlation with stock B -0.80 1.0 0.65 A

1.0 -0.80 0.40 C 0.40 0.65 1.0 If the portfolio is constructed with 15 percent of stock A, 50 percent of stock B and 35 percent of stock C, what are the expected return and risk of the portfolio?

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