You have $700,000 invested in a balanced mutual fund (Balanced Fund). You subsequently inherit a STAR Fund worth $300,000. Your financial adviser provides you with the forecasted information below:

	Investment value	Expected annual returns	Expected standard deviation of annual returns
Balanced Fund	$ 700,000	7%	11%
STAR Fund	$ 300,000	13%	21%

The expected correlation coefficient between the annual returns of the STAR Fund and the Balanced Fund is -0.20 (negative 0.20). The inheritance changes your overall portfolio and you are deciding whether to keep the STAR Fund. Call the combination of the Balanced Fund and the STAR Fund the "New Portfolio"

Assuming that you keep the STAR Fund, calculate the following:

1. The expected annual return of the New Portfolio?

2. The expected standard deviation of the New Portfolio

c. From your calculations, should you keep the $300,000 in the STAR Fund or should you liquidate it and invest the $300,000 in the Balanced Fund? Explain precisely.