(a) Using the following information calculate the portfolio (p/f) return and risk of a portfolio consisting of two assets:

Stock Expected return Standard deviation (std) P/f weight

Toronto stock index (STX) 4% 3.5% 0.50

U.S. stock index (S&P 500) 6% 2% 0.50

Correlations (STX, S&P500) 0.25

(b) Recalculate the portfolio expected return and risk by (i) changing the correlation to -0.25 and (ii) changing the weight to 0.40 for STX and 0.60 for S&P500 and comment on the differences in the results of (a) and (b