There are three securities in the market. The following chart shows their possible payoffs: a. What are

Question:

There are three securities in the market. The following chart shows their possible payoffs:

a. What are the expected return and standard deviation of each security?
b. What are the covariance€™s and correlations between the pairs of securities?
c. What are the expected return and standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 2?
d. What are the expected return and standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 3?
e. What are the expected return and standard deviation of a portfolio with half of its funds invested in Security 2 and half in Security 3?
f. What do your answers in Parts (a), (c), (d), and (e) imply about diversification?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...