(b) Suppose that you are forming a portfolio (called portfolio 1) which is weighted two-thirds in Security A and one-third in Security B. Calculate the expected return and the standard deviation of return for portfolio 1. Show your calculations.

Consider a market with two risky assets A and B. M is the market portfolio. F is the risk- free asset. This is a perfect market with no taxes or other frictions, and the prices given are equilibrium prices. All returns are annual returns. Expected Standard Correlation Matrix Beta Return Deviation A B M F (B) A 12% 25% 1.0 0.1 0.3 0 ?? B 18% 30% 0.1 1.0 0.4 0 ?? M 20% 15% 0.3 0.4 1.0 0 1.0 F 5% 0% 0 0 0 1.0 0