1. Suppose you are now an investorand you have hired a wealth managerwho recommends you invest in Mutual Fund M. It has an expected return of 15% with a volatility of 22%. The risk-free rate is 3.5%. Your Wealth Manager suggests you add Stock B to your portfolio with a positive weight. Stock B has an expected return of 20%, a volatility of 60% and a correlation of 0 with Fund M.

1. Is your wealth manager, right?

1. You follow your brokers adviceand make a substantial investment in Stock B so that now 60% is in Fund M and 40% is in Stock B. You tell your friend about your investment, and he says you made a mistake and should reduce your investment in Stock B. Is your friend, right?

1. You decide to follow your friends advice and reduce your exposure to Stock B. Now Stock B represents only 15% of your risky portfolio with the rest invested in Fund M. Is the correct amount to hold of Stock B?