The correlation coefficients between pairs of stocks are as follows:

Corr(A,B) = .85; Corr(A,C) = .60; Corr(A,D) = .45. Each stock has an

expected return of 8% and a standard deviation of 20%.

a. If your entire portfolio is now composed of stock A and you can add

some of only one stock to your portfolio, which of the stocks would you

choose? (explain your choice).

b. Would the answer to Part (a) change for more risk-averse or risk-tolerant

investors? Explain