1. Consider two risky assets A and B. Asset A has an expected return of 16% and a standard deviation of 13%. Asset B has an expected return of 20% and a standard deviation of 25%. The correlation between the returns of A and B is +0.3.

i) What is the expected return and standard deviation of a portfolio with 60% in B? (7 marks)

ii) Is there any diversification benefit resulting from forming the portfolio? Support your conclusion with calculations. (4 marks)