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Question: you own a portfolio of two stocks red river inc...

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You own a portfolio of two stocks. Red River Inc. has an expected return of 9% and a standard deviation of 15% while Boston Harbor Co. has an expected return of 15% with a standard deviation of 19%.

a. What percent of your portfolio must you invest in each stock if you wanted to earn a 12.4% return on the portfolio? (Hint: Consider W1+W2=1.0)

b. If the correlation coefficient is 0.3, what is the standard deviation of this portfolio? Is risk reduced at these weights relative to the risk of the individual assets? Why?

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