A. Consider a world with two risky assets, US stocks and international stocks. Show on a graph how the risk return frontier changes when the correlation coefficient r between these two assets changes. Show on the same graph how a portfolio with a fixed 50% investment in each of the two assets moves as r changes (Hint: how are the expected return and standard deviation of this portfolio affected by changes in r ?)

B. Draw a graph and assume that the minimum variance portfolio has a 20% investment in international stocks. Explain why less than 20% overseas doesnt provide optimal diversification.