Consider Table $6,$ which presents expected returns, standard deviations, and correlations for

three stocks, stock $1,$ stock $2,$ and stock $3.$

 

 Table $\mathrm{<strong>6\; as\; Below\; :</strong>}$

 

Expected Return Standard Deviation

Stock $14\%9\%$

Stock $26\%12\%$

Stock $38\%14\%$

Correlation $($Stock $1,$ Stock $2)0\mathrm{.}70$

Correlation $($Stock $1,$ Stock $3)0\mathrm{.}00$

$($a$)$ Form a portfolio comprising stock $1$ and stock $2.$ Calculate the expected return and standard

deviation of return of an equally$-$weighted portfolio of stock $1$ and stock $2.$ Detail all calculations

that you use.

$($b$)$ Form a portfolio comprising stock $1$ and stock $2.$ Calculate the weights of the minimum variance

portfolio $($MVP$),$ the expected return, and the standard deviation risk of the minimum variance

portfolio. Detail all calculations that you use.

$($c$)$ Form a portfolio comprising stock $1$ and stock $3.$ Plot the minimum variance frontier for the

portfolio of stocks $1$ and $2,$ and a portfolio of stock $1$ and stock $3$ on the same graph. Differentiate

between the efficient and inefficient frontiers.

$($d$)$ Suppose you wish to invest in a portfolio with a $10\%$ standard deviation risk. Should you invest

in a portfolio of stocks $1$ and $2,$ or a portfolio of stocks $1$ and $3?$ Explain your answer.