(Answered) Calculating covariance and standard deviation in portfolio

There are three securities in the market. The following chart shows their possible payoffs;State Probability of Return on Return on Return on;Outcome Security1 security2 Security3;1.15.25.25.10;2.35.20.15.15;3.35.15.20.20;4.15.10.10.25;a) What are the expected return and standard deviation of each security?;b) What are the covariances and correlations between the pairs of securities?;c) What are the expected return and standard deviation of a portfolio with half of its funds invested in security 1 and half in security 2?;d) What are the expected return and standard deviation of a portfolio with half of its funds invested in security 1 and half in security 3?;e) What are the expected return and standard deviation of a portfolio with half of its funds invested in security 2 and half in security 3?;f) What do your answers in parts (a), (c), (d), (e) imply about diversification?;Attachments;CF exercise.docx
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Calculating covariance and standard deviation in portfolio

 


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