States	Probabilities	S	B
1	0.4	25%	15%
2	0.3	35%	20%
3	0.2	15%	25%
4	0.1	15%	30%

Required: (show your step no excel ) formula and solution.

1- Compute and analyze the correlation between S and B round your answer to 2 decimals.

2- If you would like to create minimum variance portfolio, how much weight you will allocate to S and B?

3- Compute the expected return and risk of the minimum variance portfolio.

4- How do you call the curve representing all the possible combinations between S and B?

5- Explain with you own words how to draw this graph? If you would like to create the optimal portfolio.

6- Explain with your own words how to find out graphically the optimal portfolio.

7- Compute how much weight you will allocate to S and B in the optimal portfolio.

8- Compute the expected return and risk of the optimal portfolio (2 Marks) The beta of the stock S is 0.5 while the beta of the stock B is 2:

9- Indicate for each stock S and B whether it's overpriced, under-priced or fairly priced and explain the reason.