You invest your money in a portfolio that consists of 80% of Fund X and 20% of Fund B. The annual return for X is 10% and the standard deviation is 20%. The annual return for Y is 9% and the standard deviation is 15%. The correlation between X and Y is 0.60.

a. Compute the return and standard deviation of your portfolio invested?

b. Assuming you hold this portfolio for over 15 years, what is the probability of return for any particular year is less than 5%?

c. Suppose that your portfolio return for the end of the first year is 12% and 6% for the end of the second year. If you start with $10,000, how much is the end of the first year? How much is in the end of the second year? What is the average return for over two years? Compare the return of 12% for the first year and 6% for the second year and the return from the average return percent over two years. Which is more reliable? Why?