I. Suppose Jim and John both have a 1-month investment horizon and access to two stock portfolios and 1-month T-bills. Jim only cares about the expected 1-month return on his portfolio and the standard deviation of the 1-month return on his portfolio, and John only cares about the expected 1-month return on his portfolio and the standard deviation of the 1-month return on his portfolio. Tim is more risk averse than John. The two stock portfolios are a portfolio of value firms and the S&P 500 index. The return on 1-month T-bills, Re, is 0.39%, and the following data is available for the 1- month return on the portfolio of value firms, Rvalues and the 1-month return on S&P 500 index, Rs&P: E[Rvalue] = 1.23% E[Rs&p] = 0.94% [Rvalue] = 5.67% [Rs&p] = 4.38% P[RValue, Rs&p] = 0.73 A. Consider a portfolio that has 40% invested in the value-stock portfolio and 60% in the S&P 500 index. 1. What is the expected 1-month return on this portfolio? 2. What is the standard deviation of the 1-month return on this portfolio? B. Suppose the E[R] and [R] for the value-stock portfolio and the S&P 500 index remain the same but the correlation between their returns is allowed to vary. Consider a portfolio that has 40% invested in the value-stock portfolio and 60% in the S&P 500 index. 1. What is the expected 1-month return on this portfolio and the standard deviation of the 1-month return on this portfolio if: P[RValue Rs&p] = 1? b. P[RValue , Rs&P] = 0.5? P[RValue, Rs&P] =0? d. P[RValue Rs&P] =-1? 2. What do we learn from these calculations about the benefits of diversification? a. c