Suppose the Expected Returns and Risk (as measured by standard deviations of returns) for the MSCI ACWI In US and the Bloomberg Barclays Global Aggregate Bond Index are given below: Expected Return Risk (standard deviation) MSCI ACWI 8.00% 20.00% BB Global AGG 4.00% 7.00%. Question 1: Using Fundamental Equations 1 and 2 (FE1; FE2) from Notes III, what will be the expected return and risk for a portfolio with weights of 60% stocks and 40% bonds, under three different scenarios for the Correlations of Returns between the MSCI ACWI and the BB Global AGG? The three scenarios are: SHOW ALL OF YOUR WORK IN ANSWERING THE QUESTIONS. Scenario 1: Return Correlation between MSCI ACWI and BBGAGG = 0.00. What does the return correlation of 0.00 mean? E(Rp) = p Scenario 2: Return Correlation between MSCI ACWI and BBGAGG = -1.00. What does the return correlation of -1.00 mean? E(Rp) = p

Scenario 3: Return Correlation between MSCI ACWI and BBGAGG = +1.00. What does the return correlation of + 1.00 mean? E(Rp) = p Question 2: What are the lessons about portfolio return and risk by including asset classes/securities with different return correlations?