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1. ThestocksAandBhavethefollowingdistributionsofreturns. A B Probability State1 3 4 0.2 State2 5 2 0.3 State3 4 8 0.2 State4 6 5 0.1 State5 6 1 0.2

1. ThestocksAandBhavethefollowingdistributionsofreturns.

A

B

Probability

State1

3

4

0.2

State2

5

2

0.3

State3

4

8

0.2

State4

6

5

0.1

State5

6

1

0.2

2. Whatarethemeans,variancesandstandarddeviationsofstocksAandB?

3. WhatarethecovarianceandcorrelationbetweenstocksAandB?

4. Consideraportfoliowithp=0.50inAand1-p=0.5inB.Whatarethemean,variance andstandarddeviationofthisportfolio?

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