(3-3) Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 1890 and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B? (3-4) SML and CML Comparison The beta coefficient of an asset can be expressed as a function of the asset's correlation with the market as follows: c. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., rX=rX,Average,rM=rM,Average, and both X and bx in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? d. Plot the Security Market Line. e. Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: rX=rY=10.6%. Which stock should you choose