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

return of 19% and a standard deviation of 22.5%. Stock B has an expected return of 15% and a

standard deviation of 16%. The correlation coefficient between the two stocks is 0.5 and the risk-

free T-bill rate is 7%.

(a) What are the weights of stocks A and B in the optimal risky portfolio (P)?

(b) What is the standard deviation of the return on portfolio P?