Stock X has an expected return of 11% and the standard deviation of the expected return is 12%. Stock Z has an expected return of 9% and the standard deviation of the expected return is 18%. The correlation between the returns of the two stocks is +0.2.

A. What is the expected return and the standard deviation of a portfolio consisting of 90% Stock X and 10% Stock Z? Will any rational investor hold this portfolio? .

B. What is the expected return and the standard deviation of a portfolio consisting of 10% Stock X and 90% Stock Z?

C. What is the maximum amount of Stock Z a rational investor will hold in his or her portfolio? What is the expected return and the standard deviation of this portfolio? The maximum amount is a percentage between 0% and 100%, and to receive full credit your answer should be within 0.2 percentage points of the correct answer.

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