Question C2 The information about the risk-free asset, existing portfolios and the stocks considered to be included in the existing portfolio is shown as below: Stock X Stock Y Stock Z Existing portfolio Risk-free asset Expected Return 10% 15% 8% 12% 2.5% Standard Deviation 15% 21% 12% 13% Correlation matrix: Existing portfolio 1 Stock X ??? 0.42 0.92 1 Stock Z 0.52 1 Existing portfolio Stock Z Stock Y Stock X Stock Y 0.38 0.48 1 Required: (a) Calculate the expected returns and standard deviations of the following portfolios: (i) Existing portfolio: 40%; Stock Y: 60% (2 marks) (ii) Stock X: 30%; Stock Z: 30%; risk-free asset: 40% (3 marks) (b) Calculate the corresponding weighting of the existing portfolio and Stock Z in the minimum variance portfolio created by them. (4 marks) C) Without any calculations, (1) Explain why standard deviation of an investment portfolio is not weighted average of standard deviations of individual assets in the portfolio. (4 marks) (ii) Describe and explain briefly the correlation coefficient between existing portfolio and Stock X by using the above information. (2 marks)