Assume you are constructing the efficient portfolio frontier with three risky stocks A, B, and C as follows.

Without any calculations, answer the two questions below and briefly explain. [Instruction: An answer without any explanations will receive a mark of zero; Word limit: 100]

1) Assume a portfolio on the frontier has an expected return of 12.5%. Between B and C, which stock is given a higher weight?

2) Assume another portfolio on the frontier has an expected return of 20%. Between B and C, which stock is given a higher weight in this frontier portfolio this time?

Stock A Expected return Standard deviation 10% 15% 15% 20% 15% 20% B C Correlation A B A 1 0.8 0.5 B 1 0.2 0.8 0.5 C 0.2 1 Stock A Expected return Standard deviation 10% 15% 15% 20% 15% 20% B C Correlation A B A 1 0.8 0.5 B 1 0.2 0.8 0.5 C 0.2 1