An economy has only two risky assets: asset A and asset B. Asset A represents the stocks of Netflix, B the stocks of Amazon, respectively. Both assets pay uncertain rates of return expected returns and standard deviations as follows: E(ra) = 6%, E(lb) = 18%, O(A) = 12%, o(rs) = 21% Further the correlation coefficient between the returns on these two assets is -0.4. Required - (a) You have 1000 and you would like to invest 700 into asset A and 300 into asset B. Compute the expected return of your portfolio (call it AB) and its standard deviation. Would you prefer to invest into this portfolio or into a single asset A or B? Justify your answer. (b) Suppose that there is one more asset available in the economy, asset C that represents the stocks of Youtube. The expected return on this asset is 26%, its standard deviation is 24% and the asset is not correlated to portfolio AB that you received in (a). You now have additional 500 and you would like to diversify further your portfolio thus decide to invest all the amount into asset C so that in the end you have a portfolio of three assets: A, B and C. Compute the expected return of the new portfolio and its standard deviation. You should also comment on the diversification abilities of asset C with respect to your portfolio AB and discuss the limits of the diversification. (c) Explain thoroughly the difference between beta as a measure of risk and variance as a measure of risk