An investor has $25,000 in cash to invest and additionally decides to short sell Stock A. The cash and proceeds from the short sale ($15,000) are used to invest in Stock B. Stock A and Stock B have zero correlation. Stock As expected return is 30% with volatility of 48%; Stock Bs expected return is 10% with volatility of 22%

1.Estimate the portfolios expected return and variance.

2.Comment on the effect of short selling on portfolio volatility relative to the volatility of the individual

stocks. What could explain the findings?