There are three securities in the market. The following chart shows their possible payoffs: State Probability of Return on Return on Return on
Outcome Security 1 Security 2 Security 3
1 .15 .209 .209 .059
2 .35 .159 .109 .109
3 .35 .109 .159 .159
4 .15 .059 .059 .209
a-1. What is the expected return of each security?
a-2. What is the standard deviation of each security?
b-1. What are the covariances between the pairs of securities?
b-2. What are the correlations between the pairs of securities?
c-1. What is the expected return of a portfolio with half of its funds invested in Security 1 and half in Security 2?
c-2. What is the standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 2?
d-1. What is the expected return of a portfolio with half of its funds invested in Security 1 and half in Security 3?
d-2. What is the standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 3?
e-1. What is the expected return of a portfolio with half of its funds invested in Security 2 and half in Security 3?
e-2. What is the standard deviation of a portfolio with half of its funds invested in Security 2 and half in Security 3?