You are building a risky portfolio out of two assets: VTI (risky corporate stocks), VCIT (risky corporate debt).

VTI has an annual expected return of 6%, and a volatility of 12%. VCIT has an annual expected return of 3%, and a volatility of 4%. The covariance between VTI and VCIT is 0.004.

1) What is the correlation of VTI and VCIT?

2) What is the expected return of a risky portfolio made of 30% VTI, and 70% VCIT?

3) What is the variance of the portfolio made of 30% VTI, and 70% VCIT?

4) What is the volatility of the portfolio made of 30% VTI, and 70% VCIT?

5)Say the optimal risky portfolio has a weight of 50% in VTI and 50% in VCIT. Portfolio A is the portfolio that is composed of 30% in VTI and 70% in VCIT, and Portfolio B is composed of 40% in VTI and 60% in VCIT. Which statement is False?

Portfolio A has a lower expected return than Portfolio B

Portfolio A has a lower volatility than Portfolio B

Portfolio A has a lower Sharpe ratio than Portfolio B

We cannot tell whether portfolio A or B has a higher Sharpe ratio