BNP Paribas, France, buys and sells a large number of stocks routinely for the various accounts that it manages. Portfolio manager Louise Abou has asked for your assistance in the analysis of the Tissandier Fund. A portion of this portfolio consists of 12 shares of stock A and 8 shares of stock B. The price of A has a mean of 100 and a variance of 18, while the price of B has a mean of 130 and a variance of 20. The correlation between prices is 0.3.

a. What are the mean and variance of the portfolio value?

b. Louise has been asked to reduce the variance (risk) of the portfolio. She offers to trade the 12 shares of stock A and receives two offers, from which she can select one: 12 shares of stock 1 with a mean price of 100, a variance of 20, and a correlation with the price of stock B equal to -0.15; or 12 shares of stock 2 with a mean price of 100, a variance of 10, and a correlation with the price of stock B, equal to 0.45. Which offer should she select?