You are contemplating investments in the stock of Clorox and in the S&P 500 (a collection of stocks approximately representing the overall market). The Clorox required return (calculated using the capital asset pricing model or CAPM) is 11%, the Clorox beta is .75, and its bonds are rated A. The standard deviation of returns for Clorox stock is 14%. Its payout ratio is 65% and its sales are expected to grow by 7% during the next year. The S&P 500 has a standard deviation of 15%. The A-rated bond yield is 5.1% and the expected return of risk-free securities is 3%.

a. Calculate the standard deviation of a portfolio consisting of 30% invested in Clorox stock and 70% invested in the S&P 500.

b. Your research indicates that Clorox is becoming less highly correlated with the overall stock market (i.e., the S&P 500). Calculate the required return for Clorox if its correlation with the market decreased to 0.68.