A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investors expected rate of return.

Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.

Consider the following case:

Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:

Stock	Percentage of Portfolio	Expected Return	Standard Deviation
Artemis Inc.	20%	6.00%	26.00%
Babish & Co.	30%	14.00%	30.00%
Cornell Industries	35%	11.00%	33.00%
Danforth Motors	15%	5.00%	35.00%

1. What is the expected return on Andres stock portfolio?

A. 10.00%

B. 7.50%

C. 13.50%

D. 15.00%

2.Suppose each stock in Andres portfolio has a correlation coefficient of 0.4 ( = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 31%, the portfolios standard deviation (pp) most likely is____ 31%.

A. LESS THAN

B. EQUAL TO

C. GREATER THAN