I am considering to invest in security A which has an offered historical average return of 18% with a standard deviation of 22% and security B which has offered average returns and standard deviation of 12% and 10% respectively.
(a) If the correlation between A and B is 0.60, what is the least risky combination of these two assets?
(b) If the investor decides to invest in a risk free security that is offering annual return of 5%, what would be the least risk combination of these two assets and the risk free security to give 12% return?