State Probability R_A R_M

1 10% 16% 10%

2 40% 7% 18%

3 40% 12% -5%

4 10% -8% 9

1. Calculate the correlation coefficient between security, A, and the market.

3. Construct a portfolio in which 40% in asset A and 60% in M calculate the expected return and the standard deviation of the portfolio, P.

4. Calculate the benefit of diversification of portfolio, P.