Suppose that the standard deviation of returns from a typical share is about 0.44 (or 44%) a year. The correlation between the returns of each pair of shares is about 0.8.

a. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares. (Use decimal values, not percents, in your calculations. Do not round intermediate calculations. Round the "Variance" answers to 6 decimal places. Round the "Standard Deviation" answers to 3 decimal places.)

b. How large is the underlying market variance that cannot be diversified away?

MARKET RISK = ?

c. Now assume that the correlation between each pair of stocks is zero. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 share

No. of Shares Standard Variance Deviation(%) 1 2 3 4 5 6 8 10 LC No. of Shares Standard Variance Deviation(%) 1 2 3 4 5 6 8 10 LC