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Your client has $98,000 invested in stock A. She would like to build a two-stock portfolio by investing another $98,000 in either stock B or

Your client has $98,000 invested in stock A. She would like to build a two-stock portfolio by investing another $98,000 in either stock B or C. She wants a portfolio with an expected return of at least 14.0% 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

15%

49%

1.00

B

13%

38%

0.12

C

13%

38%

0.28

The expected return of the portfolio with stock B is ?%.

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