Over the past three years:

The annual rate of return on the market portfolio has been 14.0%, 20.0%, and 5.0%.

The annual risk-free rate of return has been 2.0%, 2.0%, and 2.0%.

The annual rate of return on stock X has been 12.0%, 15.0%, and 3.0%.

The annual rate of return on stock Y has been 2.0%, -1.0%, and 5.0%, implying an expected return of 2.0% and a standard deviation of 2.45%.

(a) What is the expected return and standard deviation of return for X?

(b) What is the expected return and standard deviation of a portfolio that invests $400,000 in X and $600,000 in Y?

(c) Based on the mean-standard deviation rule, would you prefer to invest $1,000,000 in Y or to invest $400,000 in X and $600,000 in Y? Why?