4. [Portfolio Risk and Return] (25 pts) Karen Johnson has a $800,000 fully diversified portfolio. She subsequently inherits XYZ Company common stock worth $200,000. As her financial adviser, you provided her with the forecasted information given in the following table: Expected annual returns Expected standard deviation (risk) of annual returns Original Portfolio 8% 10% XYZ Company 15% 20% The expected correlation of XYZ stock returns and the original portfolio returns is 0.50. (Note: PAB = 64,8/5ACB or AB = PAB OA OB) (a) If Karen keeps the XYZ stock, what is the expected return and risk of her portfolio? (b) If Karen sells all the XYZ stocks and invests all the proceeds ($200,000) in risk-free government securities which yield 2% (rate of return) annually, what is the expected return and risk of her portfolio? (Hint: The correlation between risky and risk-free securities is zero.)