Consider two risky assets with the following attributes:

	E[R]
Stock 1	80%	50%
Stock 2	20%	30%

Suppose the two stocks have correlation = 0.6

table for various portfolios of the two stocks:

y	1 - y	E[R]	st dev
-0.2	1.2	8.00%	31.05%
-0.1	1.1	14.00%	30.27%
0	1	20.00%	30.00%
0.1	0.9	26.00%	30.27%
0.2	0.8	32.00%	31.05%
0.3	0.7	38.00%	32.31%
0.4	0.6	44.00%	34.00%
0.5	0.5	50.00%	36.06%
0.6	0.4	56.00%	38.42%
0.7	0.3	62.00%	41.04%
0.8	0.2	68.00%	43.86%
0.9	0.1	74.00%	46.86%
1	0	80.00%	50.00%
1.1	-0.1	86.00%	53.25%
1.2	-0.2	92.00%	56.60%

Question: 1

If you target an expected return of 35%, what is the lowest standard deviation you can achieve?

Question 2

In the diagram on the following page, show the positions of the y = -0.2,0,0.2,0.4,0.6,0.8,1 portfolios (seven portfolios). Label them clearly. Then, draw the investment opportunity set as best you can. What shape does it have?