Security X has an expected return of 15% and a standard deviation of 35%, and is to be continued in a portfolio with Security Y. The correlation between both assets is 0.75. An investor plans to invest $3000 in Security X and $7000 in Security Y. (a) What will be the expected return om the portfolio? (b) If the investor has a risk tolerance of only 25% or less, will this be achieved? Show with calculations accurate to two decimal places. The pay-off matrix of Security Y is:

• Economic outlook Probability Rate of Return

Recession 0.10 -20%

Below Average 0.15 -10%

Average 0.30 10%

Above Average 0.25 18%

Boom 0.20 50%