For the remaining questions, consider theses stocks and their historical return data. Assume that future return data will be similar to the historical data.

Stock	mu	sigma	rho A to B
A	12.0%	30.0%	-33.0%
B	13.0%	29.0%

1.What is the expected value return for a portfolio constructed of 50% A and 50% B? Round your answer to three decimal places.

2. What is the standard deviation of returns for a portfolio constructed of 50% A and 50% B? Round your answer to three decimal places and do not represent your answer as a percent.

3. Given your answers to the above two questions, would you prefer to invest in a) 100% stock B, or b) 50% stock A and 50% stock B? Answer a) or b) and provide a reason.

This option is the simplest to manage, the best average return, and has the lowest standard deviation

This option has the highest average return and a lower standard deviation than the other stock

This option has the best rho and a very good expected value return

b)

This option has the lowest standard deviation, the most diversification, and a decent expected-value return.

a)

4. An investor's mission is "to provide a portfolio of stocks that has positive returns, when market returns are positive or negative." This investor is:

A user of the CAPM model

A user of the Opportunity Investment Model

Beta focused

Alpha focused