QUESTION 1:The return of two assets under four possible states of nature are given below:

State of nature

Probability

Return of Asset A

Return of asset B

1

0.10

5%

0%

2

0.30

10%

8%

3

0.50

15%

18%

4

0,10

20%

26%

REQUIRED:

(a)Calculate the standard deviation of return on asset A and asset B. (4 Marks)

(b)Calculate the covariance between the returns on asset A and asset B.( 4 Marks)

Calculate the coefficient of correlation between the returns on assets A and B.