(a) Identify which project is preferred, given the following information about projects A and B.

Project Expected Return Standard Deviation

A 20% 32%

B 26% 38%

In addition to the values provided in the previous problem, the following information are provided:

Correlation between returns of A and B = -.75

(b) If you form a portfolio of two assets as paired above with 40% of assets invested in the first asset, what is the standard deviation of this portfolio?

(c) Comparing among single asset A, B, and the combination of A and B as stated above, what should a rational investor choose? Explain why.