In: Statistics and Probability
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. RETURNS PROBABILITY ECONOMIC CONDITION STOCK X STOCK Y 0.1 Recession -50 -170 0.3 Slow Growth 30 40 0.4 Moderate Growth 90 150 0.2 Fast Growth 160 200 (1) Compute the expected return for stock X and for stock Y. (2) Compute the standard deviation for stock X and for stock Y. (3) If the correlation between X and Y is 0.98, compute the mean and the standard deviation of a simple portfolio with 50% of the initial investment in Stock X and 50% of the initial investment in Stock Y. |