Problem Set 3 1. You want to form a portfolio of two stocks, A and B, whose returns have the following characteristics: Stock Expected Return Beta Standard Deviation Correlation between A&B A 0.14 0.9 0.45 B 0.18 1.2 0.60 0.7 a. Suppose that your goal is to achieve an expected return of 0.155 by combining A and B. i. What portfolio combining A and B will you choose in this case? (You have to solve for the weights w, and wg so that the expected return on the portfolio is 0.155.) ii. What is the standard deviation of this portfolio? What is the beta of this portfolio? b. Suppose that your goal is to achieve an expected return of 0.196 by combining A and B. i. What portfolio combining A and B will you choose in this case? (You have to solve for the weights w, and wg so that the expected return on the portfolio is 0.196.) ii. What is the standard deviation of this portfolio? iii. What is the beta of this portfolio