A portfolio manager is considering the benefits of increasing her diversification by investing overseas. She can purchase shares in individual country funds with the following characteristics:

	United States (%)	United Kingdom (%)	Spain (%)
Expected Return	15	12	5
Standard Deviation of Return	10	9	4
Correlation with the United States	1.0	0.33	0.06

a. What are the expected return and standard deviation of return of a portfolio with 25% invested in the United Kingdom and 75% in the United States?

b. What are the expected return and standard deviation of return of a portfolio with 25% invested in Spain and 75% in the United States?

c. Calculate the expected return and standard deviation of return of a portfolio with 50% invested in the United States and 50% in the United Kingdom; with 50% invested in the United States and 50% invested in Spain.

d. Calculate the expected return and standard deviation of return of a portfolio with 25% invested in the United States and 75% in the United Kingdom; with 25% invested in the United States and 75% invested in Spain.

e. Plot these two sets of risk-return combinations (part a through d), as in Figure 15.5. Which leads to a better set of risk-return choices, Spain or the United Kingdom?

f. How can you achieve an even better risk-return combinations?