Consider a capital market with only two risky assets A and B. Their standard devia- tions...

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Consider a capital market with only two risky assets A and B. Their standard devia- tions are 1 and 2, respectively. There is no risk-free asset. (a) When the correlation coefficient PAB = 0, cpnstruct a portfolio, whose variance is strictly less than 1. [Hint: you may want to try the portfolio that puts more weights on the security with the lower standard deviation.] Consider a capital market with only two risky assets A and B. Their standard devia- tions are 1 and 2, respectively. There is no risk-free asset. (a) When the correlation coefficient PAB = 0, cpnstruct a portfolio, whose variance is strictly less than 1. [Hint: you may want to try the portfolio that puts more weights on the security with the lower standard deviation.]

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