1. The standard deviation of return on investment A is 9%, while the standard deviation of return on investment B is 7%. If the covariance between the returns on A and B is 0.0025, the correlation of returns on A and B is _________?

Recall that the correlation is the covariance scaled by the two standard deviations. Be sure to express everything in decimal form.

2. A project will double your investment in one year with probability 0.4, and a complementary chance of losing half your money otherwise. What is the standard deviation of this investment?

First, find the expected (mean) return, which is the probability-weighted average of returns.

Then, find the variance, which is the probability-weighted average of squared differences from the mean.

Then take square root of variance to find standard deviation.