1. Diamond/Edward Edward -12% Economic Probability Diamond Boom 0.3 10% Normal 0.5 7% Recession 0.2 -3% 4% 25% The risk free return is 3% a) What are the expected return and risk levels for each of the above three investments? b) if you were to construct a portfolio consisting of 40% of your funds in T-bills and 60% of your funds in Diamond, what would the portfolio risk and return be? c) If you were to construct a portfolio of 30% Diamond and 70% Edward, what would the expected return of this portfolio be d) What are the Covariance and Correlation coefficient between Diamond and Edward? e) What would the risk level of the portfolio in question (c) be? 1) What the woand We of the optimum risky portfolio and the Minimum Variance Portfolio