Suppose Company A's stock return has a volatility of 50% and its correlation with the Market Portfolio is 80%. Company B's stock return has a volatility of 40% and its correlation with the Market Portfolio is 25%. The expected return on the Market Portfolio is 7%, the volatility of the Market Portfolio is 20%, and the riskfree interest rate is 1%. Stocks A and B have zero correlation with each other. Suppose you can invest in four possible assets: Stock A, Stock B, the Market Portfolio and the riskfree government bond.

What would you invest in if you wanted the most efficient (lowest portfolio volatility) way to earn an expected return of 4%? Select from the choices below.

Group of answer choices

100% in stock A

-100% (short) market portfolio, +200% riskfree bond

-100% (short) riskfree bond, + 200% in market portfolio

50% stock A, 50% stock B

100% in the riskfree bond

100% in the market portfolio

100% in stock B

50% in riskfree bond, 50% in market portfolio