You have been recruited by KPMG in their advisory section, and your first task is related to asset allocation and more specifically the investment selection process in achieving a risk and return for Mr Abdullah, a client who is very risk averse. You are provided with the following information: Stocks B 10-Jan 20% 2% 5% 11-Jan 15% 5% 4% 12-Jan 13% 5% 13-Jan 12% 2% 14-Jan 10% 1% 4% Returns 3% 3% Risk free rate of US Treasury bill 2% p.a. ssume (a) Calculate the covariance and correlation coefficient of each of the three stocks above. You can ass the use of arithmetic mean. (b) What can you observe regarding the correlations among the three stocks? (c) If you had to choose only two stocks when constructing the risky portfolio of the client, recommend which two stocks you would not combine together? Explain your answer. (d) Estimate the risk, return and Sharpe ratio of the client portfolio if you decide to allocate 25% to stock A and 75% to stock B. (e) Would you recommend the portfolio based on stock A and B from (d) or a portfolio with a Sharpe performance of 2? Explain your answer. (f) Explain how the separation property theory is important in investment finance. (g) If interest rates are expected to fall in the U.S., would you rebalance a portfolio made up of 80% risky and 20% risk free assets? Explain your