Instruction: There are 10 questions with a total of 100 credit points. Answers must be legible. Illegible answers will not be graded. You MUST show your work. While partial credit is possibly given, its magnitude depends on the degree of relevancy of your answers to the questions asked. 1. a) Portfolio AB and Portfolio CD are portfolios composed of two stocks with equal weights. Calculate the expected returns of the two portfolios and their CVS (correlation of variation) based on the information below. Show the steps. b) What does correlation coefficient measure? Use the example of the following two portfolios to explain how to achieve the diversification effect. Expected Stock A B E (R) 25% 12% SD* 30% Portfolio of 20% A and B 27%% 30% 10% 20% C Portfolio of D C and D *: SD stands for Standard Deviation. Correlation Coefficient -0.8 1 E (R) ? ? Portfolio SD* 9.2% 25% CV