Portfolio analysis

1. You are presented with the following stocks: Stock Number Price per E(r) Standard of shares share Deviation $ per share 200 60 .10 . 12 N - -100 50 .08 .10 w 200 25 . 18 .20 The three stock correlation coefficients are : p1,2 =.20; p2,3 = .10; p1,3 =.50 In addition the investor borrows $2,000 at the risk-free rate of 4%. a. Calculate the portfolio's expected return and standard deviation. b. Would you consider replacing the third stock with a new one, same expected return, but 25% standard deviation and correlation of zero with stock one and two? Show your argument numerically