The risk and return of two assets are show below.

Asset A B

Expected return 12% 20%

Risk 3% 7%

ABC investment Co. plans to invest 80% of its available funds in asset A and 20% in asset B. the board of directors of the company believe that the correlation coefficient between the returns of these assets is +0.1.

Required;

Comment on the risk and expected return of the portfolio in the context of the risk-reducing effects of diversification

Suppose the correlation coefficient between returns of asset A and B was -1.0. Demonstrate how ABC Investment Company could invest its funds in order to obtain a zero risk portfolio.