You have gathered information about the expected returns and standard deviations of two stocks, which is given in the table below:

	Expected return	Standard deviation
Bull Inc	10.0%	30.0%
Bear Inc	6.0%	20.0%

a. Discuss which stock is more attractive and why? (hint: think about the assumptions first)

You are going to form a portfolio, which includes these two stocks. The value of your total portfolio is 800 000 and investment into stock B is 60% of the total portfolio.

b. It is estimated that the correlation between the stock returns is -0.50. Explain, what does this result mean?

c. Calculate the portfolio risk and expected return, and explain the benefits of diversification.

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