The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to
clients is the All world fund composed of global stocks with good dividend yields. One of
their clients is interested in a portfolio consisting of investment in the All world fund and a
treasury bond fund. The expected percent return of an investment in the All world fund is
7.80% with a standard deviation of 18.90%. The expected percent return of an investment
in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an
investment in the All world fund with an investment in a treasury bond fund is −12.4. If KA recommends that the client invest 75% in the All world fund and 25% in the
treasury bond fund, what is the expected percent return and standard deviation for such
a portfolio? what would be the expected return and standard deviation, in dollars, for
a client investing $10,000 in such a portfolio?