Your broker calls to tell you about three stocks he feels you should consider purchasing. He provides you with the following report: Expected Return Std Dev Beta of Returns Stock AA 20% 12 1.5 Stock BB 14% 7 1.0 Stock CC 12% 9 0.9 The correlation coefficients are as follows: Stock AA/Stock BB: 0.6 Stock AA/Stock CC: 0.35 Stock BB/Stock CC: 0.85 After reviewing this data, you decide that you only want to invest in two of the three stocks. Moreover, you will consider only three combinations of the three stocks. Portfolio (1) 45% in Stock AA; 55% in Stock BB Portfolio (2) 50% each in Stock AA and 50% in Stock CC Portfolio (3) 25% in Stock BB; 75% in Stock CC Required: a) b) Calculate the expected returns and standard deviation of the three portfolios. Which portfolio is best using these criteria? If the risk free rate is 7%, and the expected return on the market is 15%, would you purchase any of these stocks? Why or why not?