There are three assets A, B and C. The returns for shares A, B and C over the next year have expected values 9%, 6%, 5% respectively. The standard deviations for A, B and C are 30%, 25% and 20% respectively. The covariance between these A and B is 0.0375, the covariance between A and C is -0.018, the covariance between B and C is -0.03. Ben currently has invested 40%, 40%, 20% in shares A, B and C respectively.

a) (C) Calculate the expected return on Ben's portfolio. Show full working. [2 marks]

b) (C) Calculate the correlations AB, AC, BC. Show full working. [3 marks]

c) (C) Calculate the variance and standard deviation of the return on Ben's portfolio. Show full working. [4 marks]

d) (W) Alice also wants to invest in shares A, B and C, but her risk appetite is higher than Ben. Suggest a weight allocation such that Alice's portfolio will have a higher risk than Ben's portfolio, and explain why. You are NOT required to provide calculations. [2 marks]

[NOTE: (C) means calculation, (W) means Written response)