Consider an investor who holds an equal-weighted risky portfolio of two securities with the following expected returns and standard deviations. The correlation between the two securities is 0.30.

Expected Standard Security Return Deviation A 13.0% 16.0% B 9.0% 10.5%

(a) What is the risky portfolios expected return?

(b) What is the risky portfolios standard deviation?

(c) The riskfree asset return is 3.5%. If the investor puts 20% of her wealth into the riskfree asset and 80% in the risky portfolio, what is the expected return and standard deviation of her total portfolio?

(d) Now she borrows an amount equal to 25% of her wealth and uses the proceeds to invest in the risky portfolio. What is the expected return and standard deviation of her total portfolio?