Bonds	Equities
Expected Return	5%	12%
Expected Standard Deviation	10%	16%

1. Using the information above and given a correlation of 0.34 between the expected returns of Bonds and Equities, calculate the expected portfolio risk and return of an equally weighted portfolio of Bonds and Equities. Comment on the expected risk and return of the portfolio combining both asset types versus an investment in either bonds or equities. (10 marks)

2. Comment on why diversification works, and describe different ways in which an investor may seek to diversify their portfolio. (25 marks)