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% 30% -12% 50% 9% Normal Boom Q. 1: Expected rate of return for each security Q. 2: Expected rate of return for the portfolio with the stock A and B Q. 3: Variance for each security Q. 4: Standard deviation for each security Q. 5: Weighted average of standard deviations of two securities Q. 6: Covariance between securities Q. 7: Correlation coefficient between securities Q. 8: Variance of the portfolio Q. 9: Standard deviation of the 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).