Consider the following two risky assets:

Expected Return

Standard Deviation

A

10%

40%

B

12%

60%

a) What is the expected return and volatility (Standard Deviation) of a portfolio with 50% of asset A and 50% of B, if the correlation coefficient = +1. What if the assets were completely independent ( = 0).

b) If the assets are perfectly negatively correlated ( = -1), what is the weight and expected return on the portfolio of these assets, that make it risk-free.Draw a graph of the different outcomes depending on .