For the problem found below, answer the following questions:
1. What financial concept or principle is the problem asking to solve?
2. In the context of the problem scenario, what are some business
decisions that a manager would be able to make after solving the
problem?
3. Is there any additional information missing from the problem that
would enhance the decision-making problem?
4. Without showing mathematical calculations, explain in writing how
you would solve the problem.

Suppose the expected returns and standard deviations of stocks A and B
are E(Ra)=0.17, E(Rb)=0.27, StdDeva = 0.12 and StdDevb=0.21,
respectively.
a.	Calculate the expected return and standard deviation of a portfolio
that is composed of 35% A and 65% B when the correlation between the
returns on A and B is 0.6.
b.	Calculate the standard deviation of a portfolio that is composed of
35% A and 65% B when the correlation coefficient between the returns
on A and B is -0.6.
c.	How does the correlation between the returns on A and B affect the
standard deviation of the portfolio?

---

Clarification of Question by lrdgz-ga on 18 Sep 2005 14:42 PDT

I would appreciate all you can do to expedite your response to me -
preferably within the next couple of hours.  I will make it worth your
while in a tip!  Thanks in advance.