An investor can design a risky portfolio based on two stocks, A and B. Stock A has an

expected return of 18% and a standard deviation of return of 20%. Stock B has an

expected return of 14% and a standard deviation of return of 5%. The correlation

coefficient between the returns of A and B is .50. The risk-free rate of return is 10%.

The standard deviation of return on the optimal risky portfolio is

A. 5%

B. 7%

C. 20%

D. 0%

You put half of your money in a stock portfolio that has an expected return of 14% and

a standard deviation of 24%. You put the rest of your money in a risky bond portfolio

that has an expected return of 6% and a standard deviation of 12%. The stock and bond

portfolios have a correlation of .55. The standard deviation of the resulting portfolio

will be:

A. more than 12% but less than 18%

B. equal to 18%

C. more than 18% but less than 24%

D. equal to 12%