Your client asks you to create a two-asset portfolio which has an expected return of 15% and a return standard deviation of 12%. The client specifies that the portfolio should include 60% of stock Merlyn (named after her beloved mother) that has an expected return of 13% and a variance of 0.01. 1. What are the mean return and the variance of the second stock (which has a weight of 60% in the portfolio), assuming the stocks have zero correlation? (1 point.) 2. What are the mean return and the variance of the second stock (which has a weight of 60% in the portfolio), assuming the stocks have covariance of 0.007? (1 point.)

7 Portfolio Mean return 8 Portfolio Standard Deviation 15% 12% 10 Portfolio veights Merlyn Second stock 60% 12 13 14 Part (1) 15 16 Expected return 7 Variance 18 Covariance 19 20 21 Part (2) Merlyn Second stock get fornula 13. 00% 0.01 Merlyn Second stoc kget fornula 23 Expected return 24 Variance 25 Covariance 26 27 28 13.00% 0. 01 0.007