PLEASE show formulas! Thank you

1. The variance of Stock A is .0105 and the variance of Stock B is .0087. The covariance between the two projects is -0.005. What comes closest to the portfolio variance of an equally weighted portfolio (50% in each stock) containing the two stocks?

A. 0.0000

B. 0.0023

C. 0.0048

D. 0.0071

E. 0.0099

• 2. Suppose that the correlation coefficient between Asset X and Asset Y is 0.00, and that a two-stock portfolio is formed by combining some percentage of your money in Asset X and some percentage of your money in Asset Y. What would be true with respect to the diversification benefits of this portfolio? (This question has only 3 possible answer choices no choice D and no choice E)

A.No benefit such that portfolio risk is a weighted average of the individual risks of the two assets

B.Maximum benefit such that portfolio risk can be reduced to zero

C.Partial benefit such that some percentage of total risk gets reduced through diversification

What can we infer from the fact that the correlation coefficient between Project Jimmy and Project Walter was equal to -1.00?

• a.That there will be no diversification gain between the two projects
  • b.That the covariance between the two projects will be negative
  • c.Thattheexpectedreturnofthetwoprojectswillbezero(orclosetozero)
  • d.Thatthestatedependentreturnsmusthavehadequalprobabilityofoccurring
  • e.That the projects have no relationship with each other