You are constructing a portfolio with the following assets:

Stocks Bonds

Expected return () 11.2% 5.6%

Standard deviation () 19.2% 8.1%

Correlation coefficient () 0.13

a. You invest 77% of your wealth in stocks and 23% in bonds. Calculate the expected return and standard deviation of your portfolio.

b. Calculate standard deviations when the correlation coefficients are two extreme values, -1 and +1. Which case would you prefer?