Question: Stock A Expected return E(r A ) 12% Return standard deviation, s A 15% Stock B Expected return E(r B ) 22% Return standard deviation,

Stock A
Expected return E(rA) 12%
Return standard deviation, sA 15%
Stock B
Expected return E(rB) 22%
Return standard deviation, sB 25%
Correlation of A and B returns, r 0.5
Portfolio
Proportion of A, xA 25.00%
Proportion of B, xB 75.00%
Portfolio expected return E(rp) 19.500%
Portfolio variance sp2 0.0436
Portfolio expected return sp 20.88%

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