Consider a portfolio, , which consists of assets held in equal proportions. Let represent the return on the portfolio, and let represent the return on asset . The covariance of the return on asset with that on asset is .

(i) State the total number of data items needed to calculate () and () [2 Marks]

(ii) Write down an expression for (). [2 Marks]

(iii) Using your expression from part (ii), show that the specific risk of the portfolio (i.e. the risk associated with the individual assets) tends to zero in a well-diversified portfolio.