The expected return and standard deviation for two securities, A and B, are as follows

Security

A

Expected Return: 5% Standard Deviation: 2%

B

Expected Return: 10% Standard Deviation: 5%

The correlation between the two assets are -0.7.

(a) Elton has a portfolio with a 6% expected return and 1.15% standard deviation. Why is this portfolio

inefficient?

(b) What would be the expected return of an efficient portfolio that carries the same level of risk as Eltons portfolio? (SD=1.15%)