Question: Question 3. The returns on two assets under four possible states of nature are given below: Sate of Nature Probability Return on asset 1 Return

Question 3. The returns on two assets under four possible states

Question 3. The returns on two assets under four possible states of nature are given below: Sate of Nature Probability Return on asset 1 Return on asset 2 1 0.2 5% 20% 2 0.3 10% 15% 3 0.3 13% 7% 4 0.2 18% 4% a) What is the standard deviation of the return on asset1? asset2? b) What is the covariance between the return on assets 1 and 2? c) What is the coefficient of correlation between the return on assets 1 and 2? d) Comment on the ability of this portfolio to provide the benefit of diversification

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