You are considering investments in the stocks of Mitchell Company and Alpha Company. You know that the stock of Alpha Company has a standard deviation of 22%. Mitchell Company stock has a standard deviation of 16.5%. The correlation coefficient between the Mitchell stock and the Alpha stock is 0.81, and the risk-free rate is 2%. a. Calculate the standard deviation of a portfolio with 50% of value invested in Mitchell and 50% invested in Alpha.

b. Your colleague comments, Because Alpha stock has a higher standard deviation than Mitchell, the Alpha stock should have a higher return. Based on our discussions of risk and return, explain whether you agree or disagree.