A US based MNC plans to invest in a new project EITHER in US or in Mexico. The new project is expected to take up a quarter of the firms total investment fund. The balance of the corporations investment is exclusively in an existing US project. The features of the proposed new project are as follows:

Existing US project US project (new) Mexico project (new)

Expected rate of return E(R) 10% 15% 15%

Standard deviation of E(R) 0.10 0.11 0.12

Correlation of returns from new

project with returns on existing

UK project - 0.95 - 0.05

Based on considerations of risk and return, determine the portfolio the MNC should choose if the goal is to generate more stable returns.