a) It is commonly accepted that there are gains from adding securities to an investment portfolio. Explain what is meant by this statement. (Your answer should include a discussion and example regarding systematic and nonsystematic risk as well as an indication of the optimal number of assets to be included within a portfolio in theory and in practice.)

(b) The following table provides monthly percentage price changes for two well known market indexes.

Month	Russell 2000	Nikkei
1	0.04	0.04
2	0.10	0.02
3	0.04	0.07
4	0.03	0.02
5	0.11	0.02
6	0.08	0.06

Answer the following:

(i) What have you assumed about the distribution of data (that is, have you assumed the data is a sample or a population).

(ii) Calculate the expected monthly rate of return and standard deviation for each market index.

(iii) Calculate the correlation coefficient for Russell 2000 Nikkei.