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Your client has $102,000 invested in stock A. She would like to build a two-stock portfolio by investing another $102,000 in either stock B or

Your client has $102,000 invested in stock A. She would like to build a two-stock portfolio by investing another $102,000 in either stock B or C. She wants a portfolio with an expected return of at least 15.5% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation?

Expected Return

Standard Deviation

Correlation with A

A

17%

50%

1.00

B

14%

37%

0.13

C

14%

37%

0.33

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