Question: Question 3 (15 Marks) You are forming a two stocks portfolio which has the following characteristics. Stock Return % Standard deviation investment allocation A 9

Question 3 (15 Marks) You are forming a two stocks portfolio which has the following characteristics.

Stock	Return %	Standard deviation	investment allocation
A	9	9	$100,000
B	12	12	$300,000

(A)Calculate portfolio expected return.

(B) Calculate portfolio standard deviation if the correlation between two asset is -1.

(C) Describe and discuss Risk/Return Relationship. Explain why certain investments are more risky than other with example.

(D)Discuss the concept of diversification with clear examples. If you can form a portfolio with a risky and a risk-free asset, what will be the likely impact on portfolio diversification?

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