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FIN343 Bank estimates that building a new branch office in the newly developed New Heaven township will yield an annual expected return of 10 percent

FIN343 Bank estimates that building a new branch office in the newly developed New Heaven township will yield an annual expected return of 10 percent with an estimated standard deviation of 6 percent. The banks marketing department estimates that cash flows from the proposed New Heaven branch will be strongly positively correlated (with a correlation coefficient of + 0.70) with the banks other sources of cash flow. The expected annual return from the banks existing facilities and other assets is 8 percent with a standard deviation of 5 percent. The branch will represent just 15 percent of Lifetimes total assets. Will the proposed branch increase FIN343s overall rate of return? Its overall risk? (Show your work in detail for possible full credits)

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