Calculate the followings and verify the diversification effect with the data in the table assuming that with the initial endowment of $10,000, you invest $6,000 in Stock A and $4,000 in Stock B. Also four states of the economy are assumed to be equally likely.

State of the Economy	Rate of Return on Stock A	Rate of Return on Stock B
Depression	20%	5%
Recession	10%	20%
Normal	30%	12%
Boom	50%	9%

Q. 7: Correlation coefficient between securities

Q. 8: Variance of a portfolio

Q. 9: Standard deviation of a portfolio

Q. 10: Compare the weighted average of standard deviations of two securities with the portfolio standard deviation. (a) Did you see diversification effect? (b) Why? Justify your answer in part (a).