Question 1 You are given the following information on forecasted returns: State of Economy Probability Returns Asset Class Asset Class A B 8% 25% 12% 15% -6% -10% Boom Normal Recession 0.3 0.5 0.2 You would like to construct a portfolio with 40% invested in asset class A and the rest invested in asset class B. (a) Calculate the standard deviation of returns for each of the asset classes. (12 marks) (b) Calculate the covariance of the two asset class returns. (3 marks) Using your answers to parts (a) and (b), calculate the standard deviation of the portfolio returns. (4 marks) Using your answers to part (a) and the portfolio weights, calculate a weighted- average of the asset class volatilities. (2 marks) (d) (e) Explain why your answers to parts (c) and (d) are different. Demonstrate your proficiency in writing coherently on portfolio analysis here