Consider the following information on the expected return and risk of two country funds—the Taiwan country fund (asset 1) and the Ukraine country fund

(asset 2):

a. Calculate the expected return and risk of portfolios invested in the following proportions. Assume a correlation of ρ = 0. 35.

Using the expected return and risk calculations for all the portfolios, plot the efficient frontier.

b. Assuming now ρ = –1, ρ = 0, and ρ = +1, repeat part a.

c. What do you conclude about the role played by correlation in risk reduction?

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E(r) = 10%, 0 = 14% E(r2) 16%, 02 = 20%