2. Mr. Richman has a $900,000 fully diversified portfolio with monthly expected return 0.67% and standard deviation 2.37%. He just inherits $100,000 XYZ stocks with monthly expected return 1.25% and standard deviation 2.95%. The correlation coefficient between his portfolio and XYZ is 0.4. Mr. Richman needs to decide what to do with XYZ stocks.

A. If he keeps XYZ stocks, calculate expected return AND standard deviation of his new portfolio which includes the XYZ stock.

B. If he sells all the XYZ stocks and invest the proceeds in T-bill yielding 0.42% monthly, calculate expected return AND standard deviation of his new portfolio which includes T-bills.

C. Mr. Richman wants to sell XYZ stocks and invest the proceeds in ABC stocks, which offers the same expected return and standard deviation as XYZ stocks. He claims the switch will have no impact on his new portfolio performance. Is it correct or incorrect? Justify your answer.