a. The expected returns and risks of two securities, X and Y, are given below. If the correlation of the returns on these securities is +0.3 determine the expected return on a portfolio made up of 60 per cent of X and 40 per cent of Y.

Security Expected Return Risk (SD)

X 18% 22%

Y 26% 32%

b. The typical security has an expected return of 14 per cent with a standard deviation of 19 per cent, determine the expected return and risk of a portfolio of 100 securities if the returns on securities are independent.

c. What difference would it make to your answer to (ii) if the returns are not independent and the typical correlation coefficient among security returns is +0.45?