Question #1 (15 points) Consider the following two assets. Returns on asset l has a mean of 111 and standard deviation of 1 Returns on asset 2 has a mean of 2 and standard deviation of 2. The correlation coefficient P1.2 m easures how the two assets' returns are correlated, and it takes on values between -1 and +1. An investor puts Wi fraction of her wealth into stock 1, and W2-1-W1 fraction of her wealth into stock 2. 1. Using the equation on the standard deviation of portfolio returns, discussed in today's class, argue that the portfolio risk is increasing in p12- 2 when 1,2 1, argue using mathematical formulas that the portfolio standard deviation is equal to the weighted average of the standard deviation of the individual stocks in the portfolio. (Hint, Square of Summation). 3. Now suppose P1.2 =-1. If the investor wants to minimize her risk in investing in this portfolio, how should she choose W1 and W2 = 1-W? (Hint, Square of Difference)