Expected return	Standard deviation of return	Covariance of stocks return with the return on the market portfolio
Stock A	15%	15%	0.0288
Stock B	20%	25%	0.0432

Correlation coefficient between returns of Stock A and Stock B	0.5
Expected return of the market portfolio	10%
Standard deviation of the market portfolio	12%
Risk-free rate	5%

- What is the standard deviation of your portfolio in the previous question (30% in Stock A, and 70% in Stock B)?

- Instead of investing in Stock A and Stock B, now you decide to invest your money in the market portfolio and risk-free assets. Suppose you invest 40% of your money in risk-free assets, and the rest 60% in the market portfolio. What is the expected return and standard deviation of your portfolio?

- Now, you are allowed to take a short position in risk-free assets. Suppose you have $100,000 in cash, and you decide to borrow another $50,000 at the risk-free rate of 5% to invest in the stock market. That is, you invest the entire $150,000 (=$100,000+$50,000) in the market portfolio. What is the expected return and standard deviation of your new portfolio?

- Suppose you still construct a portfolio, say portfolio X, by investing in risk-free assets and the market portfolio. If you want the standard deviation of portfolio X to be 8%, what fraction of your money should be invested in the risk-free assets?

- What is the beta of Stock A with respect to the market portfolio?