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In: Statistics and Probability

You are considering building up an investment portfolio of stocks (S) and/or short term Treasury bills...

You are considering building up an investment portfolio of stocks (S) and/or short term Treasury bills (T). The returns from both sources are judged uncertain, of course, as the following probability table indicates:

T

S

-10%

0%

10%

20%

6%

0

0

0.10

0.10

8%

0

0.10

0.30

0.20

10%

0.10

0.10

0

0

(1) If you split your investment 70% in stock and 30% in Treasury bills, what are the expected rate of return and standard deviation of the portfolio?

(2) Are the returns of stock and bond independent?

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orchestra answered 2 years ago
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