Assume that you have three stocks J, K, and L with different expected returns and standard deviations. Use a standard deviation/expected return space to answer these questions

1. Sketch on the diagram how portfolios combining only stocks J and L would plot if the two stocks are positively perfectly correlated. Explain and justify. (1.5 marks)

2. Sketch on the diagram how portfolios combining only stocks K and L would plot if the two stocks are not perfectly correlated. Explain and justify. (1.5 marks)

3. Would you ever prefer a portfolio that combines K and L over a portfolio that combines J and L? Explain. (2 marks)