you are given the following data:

Probability Expected return of stock A Expected return of stock B

30 13 15

20 14 13

20 15 12

30 16 11

Using these stocks you have identified two investments portfolio alternatives:

Alternatives Portfolios

1 100% A

2 40% A and 60% B

Required:

1. Calculate the portfolio return and standard deviation for each alternatives

2. Based on the findings above, which of the two (2) alternatives would you choose? give reason.

3. What do your answers in Part (2) imply about diversification?

4. The most important factor which determines the portfolio's risk is the expected returns and standard deviations of the individual securities in the portfolio. Is this statement corect or incorrect ? discuss.