Suppose that the standard deviation of returns from a typical share is about 0.41 (or 41%) 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.)

No. of Shares Variance Standard Deviation(%)

1

2

3

4

5

6

7

8

9

10

b.How large is the underlying market variance that cannot be diversified away?(Do not round intermediate calculations. Round your answer to 3 decimal places.)

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 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.)

No. of Shares Variance Standard Deviation(%)

1

2

3

4

5

6

7

8

9

10