Consider investing into two stocks. Suppose stock As expected return next year is A = 10% and stock Bs expected return is B = 20%. Also assume that they have standard deviations of A = 15% and B = 25%, with a correlation of = 10%:

a) What is the expected return on the equal-weighted portfolio?

b) What is the risk (standard deviation) of an equal-weighted portfolio?

c) How do you construct a portfolio with 18% return and what is the risk of this portfolio?