An equally-weighted portfolio of two stocks, SAF and FUN, has an expected return of 25% (with a correlation coefficient for SAF and FUN of 0.50). SAF stock has an expected return of 18% (with a standard deviation of 0.15). FUN stock has an expected return of 39% (with a standard deviation of 0.67). Which investment would be most preferred? Hint: Units of risk should be in terms of standard deviation (not variance). ______________________

Answer, which of the three terms in the portfolio variance equation (i.e. major components of risk) for the two-stock portfolio contained the least amount of risk? ______________________________________________________________________________

What would be the weight of FUN stock that would create a two-stock portfolio with the least amount of risk?