The correlation coefficient between stocks A and B is: = .7. Both stocks have an expected return of 15% and a standard deviation of 20%. In addition, you calculated that minimum variance portfolio (mvp) of A and B consists of 50% of A and 50% of B.

1. Compute standard deviation and the expected return of mvp.
2. Suppose risk free asset has expected rate of return of 5%. Plot combination line that contain portfolios composed of stocks A and B on the standard deviation-expected return plane. Plot optimal capital allocation line (CAL). Clearly label axes and all important points on the graph.
3. Calculate slope of the optimal CAL. What is the name of this slope?