You are analysing Tassel Industries. It has a beta of 1.2. The expected return on a market portfolio is 10%, and risk free rate is 4%.

a. What is the expected return of Tassel? (5)

b. If you want to diversify your investment risk, so you decide to invest 60% of your money in Tassel, and rest of your money in a risk-free government bond (Standard deviation is zero for risk free bond). If you know the standard deviation of Tassel is 10%, what is your portfolio risk measured by standard deviation? (10)