Question

Given: E(R1) = 0:12
E(R2) = 0:16
E(σ1) = 0:04
E(σ2) = 0:06
Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions.
a. w1 = 1.00
b. w1 = 0.75
c. w1 = 0.50
d. w1 = 0.25
e. w1 = 0.05
Plot the results on a return-risk graph. Without calculations, draw in what the curve would look like first if the correlation coefficient had been 0.00 and then if it had been −0.70.

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