You are considering investing in Assets A and B with the following returns and standard deviations (of return):

E(r); SD

A 8%; 24%

B 4%; 28%

(e) Now, focus only on risky Assets A and B (forget about the risk-free asset). Show with calculations that there is diversification benefit resulting from forming the portfolio using A and B if their returns are less than perfectly positively correlated. [Hint: Take a look at Supple. Notes on Portfolio Risk Changes with Correlation under Topic 2 on Soul and recall the implications of linear and curvy efficient frontiers under different correlation assumptions.] (7 marks)