2. You have two risky assets available for your portfolio. Both assets have the same mean return. The first asset, with return R, has variance of o. The second asset has a return given by: R=R,+E , where has mean zero, variance o, and zero covariance with R. a) How does the variance of R,,,, depend on o, and o? How does the covariance of R, and R2,012, depend on o, and o?? b) Using your answers from a), what portfolio weight on asset 1 gives the global minimum variance? c) Are there any gains from diversification in this example? Why or why not? 2. You have two risky assets available for your portfolio. Both assets have the same mean return. The first asset, with return R, has variance of o. The second asset has a return given by: R=R,+E , where has mean zero, variance o, and zero covariance with R. a) How does the variance of R,,,, depend on o, and o? How does the covariance of R, and R2,012, depend on o, and o?? b) Using your answers from a), what portfolio weight on asset 1 gives the global minimum variance? c) Are there any gains from diversification in this example? Why or why not