You have the following information:

	Stock ABC	Stock JKL
Expected Return	10%	8%
Standard Deviation	6%	9%

A. If you can invest in one and only one of these two stocks (and hold the security in isolation), which stock should you choose, and why?

B. Assume that the correlation between the returns of the two stocks is +1.

• -What is the expected return and standard deviation of a portfolio containing 50% ABC and 50% JKL?
• -WhatistheoptimalamountofStockJKLforaninvestortoholdinaportfolio(ifthecorrelationis+1)?

C. Assume that the correlation between the returns of the two stocks is +0.1.

-What is the expected return and standard deviation of a portfolio containing 50% ABC and 50% JKL?

-What is the optimal amount of Stock JKL for an investor to hold in a portfolio (if the correlation is +0.1)?

D. Assume that the correlation between the returns of the two stocks is 1.

-What is the expected return and standard deviation of a portfolio containing 50% ABC and 50% JKL?

-What is the optimal amount of Stock JKL for an investor to hold in a portfolio (if the correlation is 1)?