Problem $1$:

You are provided with the following annual return data for two companies: Gallitos Tech

Return: $8\%$

Standard Deviation of Returns: $15\%$

Toritos Food Co $($Consumer Goods Sector$)$:

Expected Return: $5\%$

Standard Deviation of Returns: $10\%$

The correlation coefficient between the returns of Company X and Company Y is

$0\mathrm{.}2.$ Questions

a$.$ Calculate the expected return of Portfolio A$,$ which consists of $50\%$ of Company X and $50\%$ of Company Y$.$

b$.$ Calculate the variance of Portfolio A$.$

c$.$ Calculate the expected return of Portfolio B$,$ which consists of $75\%$ of Company X and $25\%$ of Company Y$.$

d$.$ Calculate the variance of Portfolio B$.$

e$.$ Based on your calculations, which portfolio has a higher expected return, and which one has a higher risk $($variance$)?$ Explain your reasoning.