Question: 1. Explain the relationship between risk and required return? 2. How do you define the c orrelation of +0.30, 0, and 0.7 0 between two

1. Explain the relationship between risk and required return?

2. How do you define the correlation of +0.30, 0, and 0.70 between two stocks?

3. Why does the portfolio risk go down when you include more financial assets in a portfolio? Why does it happen? Show with the help of a graph?

4. The covariance between XYZ stock and the S&P 500 is 0.06. The standard deviation of the stock market is 18%. What is the beta of XYZ?

Assume that you have invested in two stock A and B. Stock Ahas a standard deviation of return of 10 percent. Stock B has a standard deviation of return of 20 percent. The correlation coefficient between the two stocks is 0.45. If you invest 70 percent of your funds in stock A and 30 percent in stock B, what is the standard deviation of your portfolio?

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